Canadian equity financing deals dive to 27-year low on market volatility

(This Oct. 6 story has been corrected to change designation of John Clifford to COO from CEO in the last para.)

By Divya Rajagopal

TORONTO (Reuters) - The slump in Canada's mergers and acquisition activity extended into the third quarter as volatile stock markets and rising borrowing costs spooked sentiment for dealmaking, with equity-linked issues slumping to the lowest in 27 years.

Despite the sharp fall, some bankers are beginning to see opportunity. HSBC Plc's potential sale of its Canada unit, worth up to C$10 billion ($7.3 billion), and Dye & Durham's A$1.27 billion ($815.85 million) bid for Link Administration's corporate markets and banking segments are among the transactions that could keep bankers busy for the rest of the year.

M&A deals in the three months ended Sept. 30 dropped 52% to $37 billion, the lowest since 2020, taking the tally for the first nine months of the year to $182 billion, a drop of 28% from a year ago, according to data released by Refinitiv on Thursday. The drop in Canadian M&A volumes is in line with the global trend.

Canadian tech company OpenText Corp's $5.7 billion bid for UK-based Micro Focus International PLC, was the biggest deal last quarter, followed by Domtar Corp's $3.2 billion purchase of Resolute Forest Products Inc.

JPMorgan Chase was the top M&A adviser, working on $34 billion worth of deals in the first nine months, followed by Morgan Stanley and TD Securities.

Canadian equity and equity-related issues fell by 77% in the first nine months to C$11 billion, the lowest nine-month tally since 1995, Refinitiv said.

"Dealmaking in Canada continues to see lower market sentiment and volumes, similar to other markets around the world, yet we see meaningful opportunities in the current environment," said Alex Graham, head of Rothschild Canada.

Royal Bank of Canada led the league table for equity issuance, underwriting roughly C$2 billion in equity deals, followed by Scotia Bank and Bank of Montreal.

Energy and power companies led the equity financing, raising C$3.1 billion in first nine months of 2022.

"I think there's a fair amount of uncertainty right now about just what the next few months will hold," said John Clifford, Chief Operating Officer of McMillan LLP, a Toronto-based law firm that specializes in mergers and acquisitions.

($1 = 1.3722 Canadian dollars)

($1 = 1.5567 Australian dollars)

(Reporting by Divya Rajagopal; editing by Jonathan Oatis)