Rising interest rates, inflation and recession fears are roiling markets and slowing traffic on Bay Street.Adrien Veczan/The Canadian Press
Traffic on Bay Street has slowed to a crawl.
Takeover activity and sales of equity and debt, the lifeblood of investment banks and law firms, has dropped sharply so far this year compared with 2021. Rising interest rates, recession fears and a stock-market sell-off cooled what had been a hot market for deal-making.
In Canadian equity, debt, and merger and acquisition markets, activity in the third quarter slowed significantly compared with the first two quarters of the year, and is well behind the pace set last year.
The hardest-hit sector is Canadian equity capital markets, a lucrative business for banks. The value of new stock issues fell by 72 per cent through the first three quarters of the year, to $11.5-billion compared with $41.2-billion for the same period in 2021, according to statistics by financial data service Refinitiv.
The value of domestic debt offerings – sales of government and corporate bonds – dropped by 27 per cent over the past nine months to $134-billion. Merger and acquisition activity is down by 30 per cent, with US$181-billion of takeovers announced so far this year, well off the record-setting pace of M&A in 2021.
The initial-public-offerings market is moribund, with $1.6-billion raised so far this year on 19 stock-market debuts. One large IPO accounts for the bulk of that total, a $913-million offering from vision-care company Bausch + Lomb. In 2021, Canadian companies set a record for IPO valuations, with 50 companies raising $9.1-billion. The majority of these newly public companies now sport share prices that trade below the IPO price.
While underwriting activity is slow, investment bankers say companies that need to raise money through stock sales can do so, by demonstrating to investors that they can put capital to work on building the business.
“For quality companies, with a clear use of proceeds and, ideally, a bit of flexibility on timing, the tone of this market can be conductive to raising capital,” said Nitin Babbar, global co-head of equity capital markets at RBC Capital Markets, the top investment bank for stock offerings through the first nine months of the year.
The forces that are roiling markets – rising interest rates, inflation and recession fears – have many institutional investors holding more cash in their portfolios than usual. “These are unprecedented times for many investors, and they are repositioning portfolios in response to macroeconomic trends,” Mr. Babbar said. “That means they have capital to deploy.”
TOP banks for EQUITY UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
RBC Capital Markets
$2.0
16
Scotiabank
1.4
12
BMO Capital Markets
1.3
22
TD Securities
.8
13
CIBC World Markets
.8
11
TOP BANKS FOR DEBT UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
Nat’l Bank Financial
$27.6
81
RBC Capital Markets
24.2
111
BMO Capital Markets
19.9
91
CIBC World Markets
19.9
99
Scotiabank
17.9
74
TOP BANKS FOR M&A
Value (U.S. billions)
Rank
Bank
No. of deals
JPMorgan
$34.9
16
Morgan Stanley
31.4
25
TD Securities
30.2
23
Goldman Sachs
28.8
19
RBC Capital Markets
24.4
42
TOP LAW FIRMS FOR M&A
Value (U.S. billions)
Rank
Firm
No. of issues
Torys
$36.6
39
Osler Hoskin/Harcourt
30.1
135
Linklaters
24.1
15
Stikeman Elliott
23.9
93
Paul, Weiss
23.1
14
THE GLOBE AND MAIL, SOURCE: refinitiv
TOP banks for EQUITY UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
RBC Capital Markets
$2.0
16
Scotiabank
1.4
12
BMO Capital Markets
1.3
22
TD Securities
.8
13
CIBC World Markets
.8
11
TOP BANKS FOR DEBT UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
Nat’l Bank Financial
$27.6
81
RBC Capital Markets
24.2
111
BMO Capital Markets
19.9
91
CIBC World Markets
19.9
99
Scotiabank
17.9
74
TOP BANKS FOR M&A
Value (U.S. billions)
Rank
Bank
No. of deals
JPMorgan
$34.9
16
Morgan Stanley
31.4
25
TD Securities
30.2
23
Goldman Sachs
28.8
19
RBC Capital Markets
24.4
42
TOP LAW FIRMS FOR M&A
Value (U.S. billions)
Rank
Firm
No. of issues
Torys
$36.6
39
Osler Hoskin/Harcourt
30.1
135
Linklaters
24.1
15
Stikeman Elliott
23.9
93
Paul, Weiss
23.1
14
THE GLOBE AND MAIL, SOURCE: refinitiv
TOP banks for EQUITY UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
RBC Capital Markets
$2.0
16
Scotiabank
1.4
12
BMO Capital Markets
1.3
22
TD Securities
.8
13
CIBC World Markets
.8
11
TOP BANKS FOR DEBT UNDERWRITING
Value (billions)
Rank
Bank
No. of issues
Nat’l Bank Financial
$27.6
81
RBC Capital Markets
24.2
111
BMO Capital Markets
19.9
91
CIBC World Markets
19.9
99
Scotiabank
17.9
74
TOP BANKS FOR M&A
Value (U.S. billions)
Rank
Bank
No. of deals
JPMorgan
$34.9
16
Morgan Stanley
31.4
25
TD Securities
30.2
23
Goldman Sachs
28.8
19
RBC Capital Markets
24.4
42
TOP LAW FIRMS FOR M&A
Value (U.S. billions)
Rank
Firm
No. of issues
Torys
$36.6
39
Osler Hoskin/Harcourt
30.1
135
Linklaters
24.1
15
Stikeman Elliott
23.9
93
Paul, Weiss
23.1
14
THE GLOBE AND MAIL, SOURCE: refinitiv
One successful deal, a share sale last month by Calgary-based Tamarack Valley Energy Ltd. to fund a takeover, saw the company and bankers at Royal Bank of Canada and National Bank Financial Inc. work through the weekend to announce an offering early Monday morning, raising money ahead of a week filled with market-moving economic news. Tamarack initially targeted a $125-million share sale. Mr. Babbar said deft timing and a warm reception for the acquisition meant the deal was bumped to $144-million.
Bank of Nova Scotia ranked second for equity and corporate debt sales through the first nine months of the year, in part because of an increase in stock and bond offerings through the investment bank’s sustainable finance group. Jake Lawrence, chief executive officer for the global banking and markets division at Scotiabank, said: “We have been deliberately focused on enhancing our origination capabilities for all clients, corporate and institutional.”
National Bank Financial (NBF) was the top debt-capital-markets underwriter through the first nine months of the year, in part because the Montreal-based investment bank consistently wins mandates from the Quebec government and provincial agencies.
Traditionally, rising interest rates and the prospect of a recession make it difficult for companies with weak balance sheets – those with non-investment-grade credit ratings – to access debt markets. Sean St. John, NBF’s executive vice-president and head of fixed income, said that while credit markets were volatile, businesses that need to borrow can still do so.
“Our corporate debt mandates were strong across the credit spectrum, from investment grade to high yield,” Mr. St. John said. “NBF’s franchise continues to showcase its strength in debt financing.”
In M&A markets, investment banks and law firms needed to have roles in a handful of large crossborder deals to occupy the top tier of this year’s league tables. The two leaders, JP Morgan and Morgan Stanley, are involved in both Bank of Montreal and Toronto-Dominion Bank’s multibillion-dollar takeovers of regional U.S. banks, as advisers to either the buyer or seller.
Advising banks also determined which law firms led the M&A rankings through the first nine months of this year. Torys was the top law firm with roles in deals worth US$36.6-billion, including advising on TD Bank’s US$13.4-billion bid for First Horizon Corp. Osler Hoskin & Harcourt ranked second by advising on US$30.1-billion in takeovers, one of which is Bank of Montreal’s US$16.3-billion acquisition of Bank of the West.