July 18, 2011
There are two bubbling sounds in the offices of Bay Street law firms these days. One is the baritone burble of coffee makers late into the night as young lawyers work feverishly over a slew of merger and acquisition cases. The second comes much later – the quieter, sibilant fizz of champagne to celebrate the resurgence in takeovers.
Sharon Geraghty points out that current M&A mania sometimes verges on the ridiculous.
"First, Inmet wants to merge with Lundin. Then Equinox bids for Lundin. Then Minmetals bids for Equinox. Then Barrick bids for Equinox," she says, rattling off names of mining companies involved in what was ultimately a US$7.7-billion deal.
"You just have to look at that and laugh; companies are falling over themselves to scoop up these deals to the point where there are multiple offers for the same company." (She had barely finished saying this when a consortium of Chinese bidders stepped up and threw its hat into the ring as well.)
"In the market meltdown, you couldn’t get anyone to finance an acquisition," says Jamie Scarlett. "Secondly, there was the problem with values. It was like selling your house in a falling market – you are always pricing it wrong. You couldn’t get heads together on price."
Two years later, markets appear more stable and companies more confident. And it is corporate Canada and its advisers that are the biggest beneficiaries. In 2010, mergers and acquisitions in Canada resource totalled C$177 billion, according to Thomson Reuters data. That compares with C$146 billion a year earlier.
The twin themes that dominated 2010 were mining and marketplace consolidation. They appear closely intertwined in the most high-profile case of 2011 as well: The London Stock Exchange Group's proposal to take over the TMX Group, which runs the Toronto Stock Exchange. And since then, Maple Group Acquisition Corp., a consortium of Canadian banks, pension funds and financials, has also launched a bid.
"It is staggering how large the TSX is," says Jamie. "If you take out the biggest four or five mining companies on the London Stock Exchange, its market capitalization of mining issuers would be smaller than Toronto's."
Jamie continues: "The resources sector is incredibly international. What are the Chinese investing in? What about the sovereign wealth funds from the Middle East? They are all putting money into oil and gas and commodities and agriculture. You have to feed people."
It’s a win-win situation because Canada has the resource-rich land mass that appeals to those with the capital to exploit it. “That has to come from somewhere," he adds.
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