Canadian mid-market M&A activity in Q4 2021 increased to $9.2 billion in aggregate deal value, relative to $5.9 billion in Q3 2021. Continued strength in global equity markets and low interest rates have contributed to positive investor sentiment and supported robust M&A activity, further evidenced by strong valuation multiples during the quarter.
The Canadian equity market continues to flourish with increased private equity presence escalating competitive tensions for quality acquisitions.
Canadian mid-market
Aggregate deal value increased from $5.9 billion across 75 transactions in Q3 2021 to $9.2 billion across 100 transactions in Q4 2021. Continued strength in equity markets and low interest rates have increased investor sentiment and supported M&A activity.
Q4 2021 - M&A Volume by Sector
The adjacent chart summarizes the transaction volume by sector in Q4 2021. Below are sector highlights in transaction volumes:
- All but two sectors, Financials and Industrials, experienced an increase in transaction volume in Q4 2021 compared to the previous quarter.
- The Materials sector led all sectors with 21 transactions, accounting for 21.0% of total deal volume in Q4 2021.
- There were 15 transactions in the Information Technology sector, accounting for 15.0% of total deal volume in Q4 2021.
- The Energy sector contributed 12 transactions, accounting for 12.0% of total deal volume in Q4 2021.
- The Consumer Discretionary sector saw 9 transactions, accounting for 9.0% of total deal volume in Q4 2021.
Equity markets
The S&P/TSX Composite posted positive gains in Q4 2021, fueled by continued economic recovery. Eight sectors saw positive returns, including Energy and Materials, which led the market with double-digit percentage gains in Q4 2021. Of the 260 companies listed on the S&P/TSX Composite, 178 recorded a gain in 2021. The index as a whole returned 5.32% in Q4 2021.
Q4 2021 Sector Performance*
- The Energy sector returned 12.7%, outperforming the broader market in Q4 2021, with Canadian Natural Resources, Imperial Oil, and Enbridge as some of the top performers in the sector. The price of Crude Oil increased during much of 2021, driven by increased global oil demand as the economy continued to recover from the COVID-19 pandemic.
- The Materials sector returned 10.4% in Q4 2021 with Nutrien, Teck Resources, and First Quantum Minerals among the top performers in the quarter, benefitting from the increase in commodity prices.
- The Healthcare sector continued to struggle, posting a negative 20.6% return in Q4 2021, as investor uncertainty prevailed in the Cannabis industry. The loss was largely driven by a decline in Cannabis equities such as Canopy Growth Corp and Tilray.
Canadian economic update
The Canadian dollar (“CAD”) ended at 1.27 CAD/USD in Q4 2021. Strengthening global demand and decreased supply for domestic products have continued to contribute to rising commodity prices, along with increasingly positive risk sentiment that supports the CAD performance.
Canadian Real GDP is forecasted to increase 6.5% in Q4 2021, an upgrade from earlier projections. A recovery in the global economy is proceeding despite the ongoing bouts of COVID-19 infection spread and the emergence of the new Omicron variant. Canada’s economy is expected to recover from this setback as industries that suffered from the COVID-19 pandemic continue to open up with increased vaccination rates and a strong labour market.
2021 was a record year for Canada’s housing market, with home resales surpassing the annual all-time high set in 2020 by 114,000 units or 21.0%. The overall activity is expected to slow down in 2022 due to a lack of available supply, higher prices, and expected increases to interest rates.
Canada’s unemployment rate continued to decline to 6.6% in December 2021, due to the recovery of labour markets, with sectors that were heavily impacted by the COVID-19 pandemic starting to re-open and hire as restrictions ease.