CAPITAL MARKETS REPORTER
Canadian companies took advantage of resurgent markets to raise huge war chests by selling stocks and bonds in 2009, and after another relatively sleepy year for acquisitions the betting is they will put some of that cash to work in 2010.
The amount of stock sold by Canadian companies jumped by about 60 per cent to $48-billion, according to year-end tallies by Thomson Reuters.
The biggest drivers were booms in sales of shares by insurers and financial companies looking to shore up balance sheets and by gold miners playing to investors looking to get in on a hot sector. Barrick Gold Corp. did the biggest sale of the year, raising $3.5-billion, while Manulife Financial and Fairfax Financial were the biggest insurers to tap the stock market.
The buying and selling of companies was also busier, with mergers and acquisitions activity picking up by 30 per cent from 2008, which was a dismal year.
With markets building on 2009's rallies, and further signs of an economic rebound, corporate deal-making should get even busier, said Doug Guzman, head of Canadian investment banking at RBC Dominion Securities Inc., which according to Thomson Reuters was the top-ranked bank in 2009 in terms of providing merger advice and managing the most stock and bond sales.
"The volatility of markets over the last two years and uncertainty about one's own business makes corporate decision makers slower to embark on purchase and sale transactions," Mr. Guzman said. "As confidence and stability returns - we hope in 2010 - M&A activity should accelerate."
Mergers involving Canadian companies increased by almost a third to $154.5-billion (U.S.), but that's still a far cry from some of the peak years when money was cheap and confidence abounded.
A big key to RBC finishing at the top of the 2009 merger rankings, which are done by dollar value, was its role in the landmark purchase of Petro-Canada by Suncor Energy Inc., by far the largest deal in the country last year at $18-billion (Canadian).
RBC advised Petro-Canada; Canadian Imperial Bank of Commerce's wholesale banking division, which finished No. 2 in the merger rankings, provided advice to Suncor.
The biggest variable for 2010 is the strength of the economy, which will affect how much risk chief executives are willing to take as they look at mergers and how much cash investors are willing to provide to back them up.
"Disappointment in the economy will lead to the same in the equity market, which could slow [stock]issuance," Mr. Guzman said. "Greater evidence of that recovery will support the market."
In the bond market, the opposite may be true.
In 2009, companies and governments borrowed $148-billion in 2009, up from $118-billion a year earlier, as markets reopened and borrowing costs plunged. Further evidence of economic recovery may drive up interest rates by creating inflation concern. That could potentially push up the rates on government bonds, and that will likely feed through to corporate borrowing costs.
For now, investors are increasingly willing to give executives the cash they need.
"All sectors are going to be active because the Canadian economy has done well, and on the financing side you have very attractive capital markets," said Patrick Meneley, who heads investment banking at TD Securities Inc.
Increased access to debt will help bring back private equity firms, which have largely disappeared from the market.
Private equity buying activity is down about 92 per cent from its peak in 2007, according to KPMG, and its return to any sort of health will give sellers another outlet.
"Private equity plays an extremely valuable role in Canadian capital markets," Peter Hatges, president of KPMG Corporate Finance.
"They are a big part of succession planning and the alternative to an initial public offering for many companies."
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Busiest banks for stock sales in 2009
Firm // 2009 Total ($ millions) // Number of deals // 2008 Total ($ millions) // Number of deals
RBC Dominion Securities Inc. // 7,971.8 // 60 // 4,628.3 // 28
CIBC World Markets Inc // 6,222.5 // 51 // 3,413.5 // 23
Scotia Capital Inc // 4,741.0 // 31 // 2,657.6 // 9
TD Securities Inc // 4,509.8 // 41 // 3,501.5 // 18
BMO Nesbitt Burns // 3,881.8 // 53 // 3,197.3 // 20
Subtotal with Book Runner // 48,231.1 // 501 // 29,926.0 // 329
Subtotal without Book Runner // .0 // // .0 // //
Industry Total // 48,231.1 // 501 // 29,926.0 // 329
CARRIE COCKBURN / THE GLOBE AND MAIL / SOURCE: THOMSON REUTERS
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Busiest banks for bond sales
Bank // Total ($ millions) // Number of issues // 2008 Total ($ millions) // Number of issues
RBC Dominion Securities Inc. // 38,091.6 // 132 // 27,312.9 // 87
TD Securities Inc. // 28,204.7 // 74 // 21,539.4 // 55
CIBC World Markets Inc. // 24,233.2 // 109 // 14,165.6 // 49
Scotia Capital Inc. // 16,918.5 // 69 // 14,746.6 // 35
BMO Nesbitt Burns Inc. // 14,490.1 // 43 // 16,289.4 // 39
Industry Total // 148,166.3 // 353 // 117,866.4 // 253
TRISH McALASTER / THE GLOBE AND MAIL / SOURCE: THOMSON REUTERS
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Busiest advisers on mergers and acquisitions
Based on value
Firm // Value of mergers advised upon ($ billions (U.S.)) // Number of Deals
RBC Dominion Securities Inc. // 71.9 // 56
CIBC World Markets Inc // 50.9 // 35
Scotia Capital inc. // 33.2 // 24
Bank of America Merrill Lynch // 32.0 // 7
Goldman Sachs & Co // 31.8 // 23
Industry Total // 154.5 // 3,442
CARRIE COCKBURN / THE GLOBE AND MAIL / SOURCE: THOMSON REUTERS