2017 expected to see increased deal activity as commodity price outlook improves
Despite volatility and an ever-changing macroeconomic environment, Canadian deal volume showed improvement last year, rising by 16%, from 132 to 153 deals. Canadian deal value, however, remained virtually unchanged, falling by 1% year-over-year to just over US$6b in 2016. This is according to EY’s quarterly report Mergers, acquisitions and capital raising in mining and metals – 2016 trends, 2017 outlook.
“There’s a move away from the mega deals that we saw during the last cycle.” says Michelle Grant, EY’s BC Mining & Metals Transactions Leader. “In 2016, one deal was valued at over US$1b and several deals that were greater than or equal to US$0.5b. We expect the trend of more, but smaller deals to continue in 2017.”
Looking back on 2016
Gold continues to be king – Similar to 2015, gold was the commodity of choice last year. However, in 2015, the deals were more diversified, while in 2016, all but one of the top 10 deals in Canada were in gold.
Deals to diversify – Half the deals in Canada were done for diversification purposes – either geographically or from a commodities perspective.
Acquisitions, not divestments – Nine out of the top ten deals were acquisitions or business combinations. Clearly, the predictions of mass divestments at low prices didn’t come true, as the outlook improved so much during the year.
Grant adds, “Key deal drivers in 2016 included diversification, balance sheet strengthening through business combinations and investment in exploration initiatives through acquisition of junior exploration companies.”
Looking ahead to 2017 trends
- While in Canada we’ll likely see more, but smaller deals, we may see Chinese domestic producers consolidating, resulting in bulkier transactions.
- The lack of exploration spend as a result of limited access to capital will inevitably contribute to a future supply deficit. This may trigger a return to financing across the juniors towards the end of 2017.
- Early signs of market bottom will encourage those who’ve successfully strengthened their balance sheets to start considering strategic acquisitions. Mid-tiers will be consolidating their positions through all-equity based transactions, with a view of becoming major players in their respective commodities at the peak of the next cycle.
- The expected continued consolidation of commodity prices in 2017 will positively impact the sector outlook and strengthen investor confidence. As a result, options for access to capital will improve.
- Any increase in issuance of convertible bonds, though probable, is likely to be limited in relative terms when considering the overall funding landscape.
- IPOs are expected to pick up in 2017, albeit marginally, reflecting the cautiously optimistic sentiment that continues to grip investors.
- The return to growth in 2017 is likely to see a steady rise in transaction volumes as miners resume funding long term capital expenditure projects.
“In 2017, we expect a more positive industry outlook and access to capital, leading to an improvement in transaction activity this year,” adds Grant.
– 30 –
About the report
Mergers, acquisitions and capital raising in mining and metals – 2016 trends, 2017 outlook, is based on analysis of 2016 deals and capital raisings completed by 31 December 2016. All mergers and acquisitions data, and capital raising data was extracted from Thomson ONE and analyzed by EY. Only completed deals are included in the data and analysis.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY is proudly celebrating 150 years in Canada. For more information, please visit ey.com/ca. Follow us on Twitter @EYCanada.
EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.