M&A Activity: The Urge To Merge

The Urge To Merge

Any way you slice it, 2005 was a banner year for mergers and acquisitions. And there's no reason to suggest the torrid pace will slow in 2006. Because, unlike what happened before the tech bubble burst, this time the action isn't based in any single sector. “The fundamentals are very strong across the board,” says Ed Giacomelli, a managing director with Toronto-based Crosbie & Co., who monitors M&A activity in Canada. “Oil-and-gas deals were obviously a big driver over the course of the year, but it wasn't the only factor.”

In October, Barrick Gold had so much confidence in the red-hot gold market that it proposed one of the biggest plays of the year–a US$9.2-billion bid for rival Placer Dome. Giacomelli says assertive moves like that were the norm this year because businesses were feeling optimistic about the general economic outlook. “You tend to do M&A when you're feeling good about your own business, and we're in a position where the economy looks like its going to continue to grow for the next year, and there are no clouds on the horizon.”

That's why, rather than predicting big things from any specific sectors, Giacomelli is keeping an eye on income trusts: 2005 saw the first ever trust-on-trust hostile bid, when Livingston International Income Fund made a play for PBB Global Logistics Income Fund. “Now the taxation cloud on income trusts has been removed, you'll see them gear up for acquisitions,” he predicts.

Just don't hold your breath on bank mergers. Ottawa has been passing around that hot potato for years, and given the current political climate, it's unlikely any government will want to take the initiative on that issue anytime soon. Instead, look for the big banks to fine-tune their U.S. and international strategies, making them more attractive for a merger if and when the light goes green. As Giacomelli puts it: “They'll be doing things strategically to make themselves more attractive dance partners.”