“Canada an ‘Underachiever’ In Emerging BRIC Market Deal-Making” PwC Report

Canadian activity in BRIC nations changing with healthy rise in dollar volumes: PwC report

Canada has been less acquisitive than most of its developed nation peers in the coveted emerging markets of Brazil, Russia, India and China (BRIC nations), PwC’s new Capital Markets Flash report shows.

Since 2000, Canadian entities have completed 188 acquisitions in the BRIC nations, well below the UK (408), the US (1,504) and Germany (244). Canada outpaced only Australia, which made 106 deals in the same period.  With only nine Canadian acquisitions in the BRIC regions year-to-date May 31, 2011, there are no signs of this trend improving. This lag has been particularly evident with private Canadian companies whose current share of the BRIC deal market is sub 15%, significantly lower than the 35% observed pre-crisis. This trend is also prevalent in sectors outside the traditionally busy materials, financials and industrial market segments.

“In terms of deal volumes, Canada has been slow to the switch in striking deals in these key emerging markets. While recent turmoil in these regions supports this type of cautious approach, in the long term, Canadians will have to increase investments in the BRIC regions to stay competitive,” says Kristian Knibutat, PwC’s Canadian deals leader.

“In what may be a sign of a turning tide, post-crisis, we’re seeing Canada outpace others in terms of dollar volume growth, which reveals Canada could be a late bloomer in its approach to deal-making in these core regions,” adds Knibutat.

PwC found Canadian entities lag in absolute BRIC-bound deal dollar volumes, but outpace many peers in dollar volume growth. The total dollar value of Canadian-led acquisitions in BRIC nations between January 2000 and May 2011 was only $3.9 billion, well below those seen in the UK ($54 billion), the US ($73 billion) and Germany ($17 billion). However, the value of Canadian deals has been increasing at a healthy-rate post-crisis with $384 million worth of acquisitions announced year-to-date May 31, 2011. Values hit an all time-high of $793 million in 2009, almost double the value at the market peak in 2007, and higher than the strong $683 million seen in 2010.

“With close to $400 million of Canadian-led acquisitions announced this year, the positive trend is likely to continue with the strength of the Canadian dollar likely driving the upswing,” says Knibutat. “This pattern is in contrast to most other developed nations where deal values post-crisis remain well below peak.”

Overall, Canadians have been most acquisitive in the midsize segment, with volumes in the $50-$500 million range increasing faster than any other segment post-crisis.

“Canadians seem to favour a middle-of-the-road approach to deal values, largely seeking out targets with significantly lower average values than most of their peers,” adds Knibutat.

By destination, Canadians were most acquisitive in China, representing 42% of activity. However, it’s important to note that many of these entities were actually Chinese companies on Canadian stock exchanges. Brazil was the second busiest investment destination (38%) while India (7%) of deals trailed well behind.

“Behind this low number is India’s strict foreign direct investment regime, which limited foreign acquisitions into various sectors for the past decade. However, aggressive reforms aimed at attracting more foreign investment may open the doors to more Canadian investment,” says Knibutat.

The report found that, overall, Canadian companies have been active acquirers in other emerging markets outside of BRIC. In fact, over 80% of Canadian emerging market transactions have taken place in 90 other countries since 2005. Central and South America have been the most heavily targeted regions with Argentina, Chile, Colombia, Peru and Mexico accounting for over 50% of the volume.

The full report can be accessed at: www.pwc.com/ca/cmf.

About PwC’s Deal Team
PwC’s Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world’s largest Transaction Advisory practice1, and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year2, the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

Follow PwC on Twitter @PwC_Canada_LLP and on Facebook at http://www.facebook.com/pwccanada.

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1 Source: Kennedy;”Business Advisory Services Marketplace 2009-2011″ ©BNA Subsidiaries, LLC. Reproduced under license.
2 Source: Acquisitions Monthly Awards 2010 

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

For further information:

Jessica Draker, PwC
Tel: 613 755 8706
email: jessica.l.draker@ca.pwc.com 

OR:
David Rowney, PwC
Tel: 416 365 8858
email: david.rowney@ca.pwc.com

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