Canadian M&As seen shrugging off market turbulence

TORONTO Thu Nov 24, 2011 1:45pm EST

TORONTO (Reuters) - Market turbulence won't likely dissuade a wave of Canadian merger and acquisition activity in coming months as private equity funds deploy piles of cash on new investments and seek buyers for their mature assets, experts say.

Strategic buyers might stimulate further dealmaking as boards and CEOs come under pressure to spend billions in capital saved since the global economic crisis and face limited alternatives for organic growth.

"If credit markets co-operate, we'll see a huge jump in sponsor to sponsor (fund to fund) activity in the next 12 to 24 months," said Jim Fasano, a vice-president at the Canada Pension Plan Investment Board, one of the nation's largest pension fund administrators.

The comments, made to a Canadian Venture Capital and Private Equity (CVCA) conference this week, were surprisingly bullish in light of the bleak global economic environment, with the prospects of slowing demand from China and the threat of a new recession in Europe.

Fasano estimated huge demand for so-called exit activity - where funds sell their investments or take them public - in 2012, with some $1.5 trillion of assets to monetize globally.

"A lot of people are going to be seeking realizations," he said. "There are some very cash-rich corporates out there with limited prospects for organic growth."

SURVEY SHOWS OPTIMISM

According to an informal survey released at the CVCA event, entitled Investing and Exiting in Turbulent Times, 80 percent of members expect Canadian industry investments to be equal to or greater than those of the previous six months, despite the global market uncertainty.

The survey, from November 9-18, showed 43 percent of respondents expect more investments in the next six months than in the previous period. The poll of 95 respondents did not cite a margin of error.

The survey showed investors expect to sell at least one portfolio company through the M&A market in the next six months, although only 9 percent expect to exit an investment through an initial public offering.

M&A activity could be further supported by healthy access to debt markets, especially important in private equity transactions that are typically dependent on leverage.

"It's a good sellers' M&A market," Daniel Daviau, head of Canadian investment banking at Canaccord Genuity, told the CVCA seminar. "We are seeing really strong strategic interest."

Separately, a report on Thursday by consulting firm PwC showed that, even with continued economic uncertainly in the United States, Canadian firms are acquiring more U.S. companies than vice versa.

The report attributed the trend to the perception that the United States is still a safer investment than Europe, as well as access to low-cost capital, a larger scope of M&A opportunities and a desire to replace public market exposure with private market exposure.

(Reporting by Pav Jordan; editing by Rob Wilson)

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