Canadian energy, power, and mining industries are anticipated to spearhead a resurgence in dealmaking throughout 2024, buoyed by reduced interest rates.

This follows a downturn in overall mergers and acquisitions (M&A) activity in 2023, reaching its lowest point since the onset of the Covid-19 pandemic, as per bankers’ assessments.

Market analysts predict that the Bank of Canada (BoC), having raised interest rates to a 22-year high of 5% in 2023, might commence a reduction in borrowing costs as early as April.

Sarfraz Visram, the Head of Canadian and International Mergers and Acquisitions (M&A) at the Bank of Montreal, expressed optimism, stating, “This general consensus about how 2024 is going to be a more normalised environment is making its way into the boardroom.”

He added that extensive discussions with clients were underway, with the potential for a robust year in M&A if expectations materialise.

According to LSEG data, Canadian announced M&A in 2023 witnessed a 27% decline to $183.9 billion from the previous year. Citi, Goldman Sachs & Co, and RBC Capital Markets emerged as the top three financial advisers on announced M&A deals.

Energy and power M&A reached a five-year high of $70.4 billion, a 56% surge from the previous year. Notable transactions included Couche-Tard’s $3.3 billion acquisition of select TotalEnergies gas stations and Canadian Baytex Energy’s $2.5 billion bid for Ranger Oil.

The largest deal of the year involved a Glencore-led consortium’s $9 billion acquisition of Teck Resources’ steelmaking coal unit, propelling mining M&A to a 34.7% increase at $26.4 billion. Analysts expect this trend to continue into 2024.

Mike Boyd, Head of Global M&A at CIBC, emphasised continued consolidation in the resource sectors, particularly in energy, citing the benefits of scale and technology in lowering costs and targeting attractive regions.

The drop in overall Canadian dealmaking mirrored a global trend, with global M&A plummeting to approximately $3 trillion, marking its lowest level in ten years. Visram highlighted challenges, including a tight funding market and a global surge in regulatory scrutiny of deals.

While initial public offerings (IPOs) remained stagnant in 2023, with just one deal on the Toronto Stock Exchange, dealmakers are optimistic about a change in 2024.

Toronto Stock Exchange operator TMX Group reported a backlog of about 1,600 companies in its IPO pipeline, indicating potential for increased activity.

“There is a bit of a backlog in terms of not having been a market in the past year,” noted Alex Moore, a partner at law firm Blake, Cassels & Graydon.

Despite not anticipating a return to the highs of 2021, Moore suggested that with the backlog and a more optimistic economic outlook, companies might return to the market for IPOs.