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Canada experienced surprising drop in M&A activity in 2023: PwC

Financial services firm now expects deal levels return to normal in 2024
Canadian M&A deal volume in third quarter of 2023 lowest since 2017: PwC

Glencore’s $9 billion bid for Teck Resources’ B.C. coal mines aside, the Canadian mergers and acquisitions landscape in 2023 was a lot quieter than expected, says PwC, which forecasts 2024 could see an eventual return to more normal deal levels.

In its 2023 mid-year update on Canadian M&A, PwC had predicted “a slow return to historical deal volumes as interest rate increases and inflation both tempered.”

“However, since July, we’ve seen deal volume and value drop further,” PwC says in its 2024 Canadian M&A outlook.

“Q3 2023 was the lowest quarter in terms of deal volume since 2017, and as of November 30, 2023, Q4 looks to be another soft quarter.”

Third quarter 2023 M&A deals were worth just $45 billion, compared with $159 billion in Q3 2021, the PwC outlook notes.

What M&A activity did occur was largely in energy, utilities, mining and industrials.

“From a Canadian industry perspective, deals in the energy, utilities, mining and industrials (EUMI) sectors have been more robust than others," the outlook states. "In Q3 2023, EUMI accounted for 66 per cent of deal value, its highest share since Q3 2021, with the mining sector, and in particular critical minerals, playing a large role.

“However, this sector isn’t immune to economic headwinds. We’re seeing declines in battery commodity prices driven by slower demand from China, current economic and geopolitical uncertainty and a challenging financing environment. We’re also seeing some hesitancy in moving forward and completing deals.”

In the year ahead, PwC expects “challenging Canadian labour market conditions” and resulting wage pressures to ease, due to strong immigration levels and inflation falling back to 2 per cent.

“To mitigate the impacts of elevated rates on households, the Bank of Canada is expected to begin gradually cutting interest rates within the next quarter or two. We expect this will give dealmakers a path to return to a normalized level of deal flow.”