Canadian M&A Market Recap: February, 2017

  • Posted By: Valitas Capital Partners

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Market Update

181 Canadian M&A transactions were announced in February. Year to date, M&A deal count in 2017 is 6.2% higher than the comparable period in 2016. In February, the Canadian dollar depreciated relative to the U.S. dollar by 2.28 cents, ending the month at 74 cents. Over the past month, the U.S. dollar denominated TSX index underperformed the S&P 500 index by 5.1%, largely driven by the sharp decrease in the Canadian dollar. WTI Crude Oil prices closed the month of February at a 52-week high, reaching $54.75 per barrel.

Valitas Insights: Choose Value Creation

The Wall Street Journal’s “World Watch” column recently reported Canada’s “surprise” quarterly GDP growth of 2.6%, but pointedly noted that alongside this pleasant surprise is the worrying fact that business investment in the country has once again declined – for the ninth time. In short, for more than two years Canadian business has been on the retreat, pulling back from a growth agenda and circling their collective fiscal wagons.

Others noticed too. Bloomberg looked at Statistics Canada’s most current report on capital spending intentions and found that non-resident business investment in Canada is not bucking the domestic business investment trend. In fact, non-resident business investment declined a whopping 19% over the past eight quarters.

To put a finer point on this trend, Canada has not seen such a sustained and deep drop in business investment since 1951. According to Bloomberg, this drop may indeed be the “biggest since the 1950s.” Investment in machinery and equipment now stands at a paltry 3.7 percent. In the mid-1990s it was approximately double that.

The consequence of this trend for Canadian businesses was recently captured in a timely Seth Godin Blog where he reminded his followers that organizations boost metrics by one of two methods: “Creating more value for their customers, or [d]oing just enough to keep going, but for less effort and money.”

Business investment numbers suggest that businesses in Canada have decided to tread water. There is an opportunity cost to this in the medium and long term. The energy spent treading water for too long robs a business of the energy and focus it needs to continue to create value and grow.

Mr. Godin’s timely Blog suggests that Canadian business leaders should ask themselves whether they are “Increasing value or lowering costs” when making decisions to reduce business investments.

The poignant fact is, as Mr. Godin says, a business can either “Race to the top or race to the bottom, it’s a choice.”

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