The Toronto financial District. File photo: VCG

Canadian merger and acquisition (M&A) activity during the first quarter soared to an all-time high as dealmaking recovered from the coronavirus fallout, and bankers point to a healthy pipeline of transactions underpinned by easy financing conditions.

The novel coronavirus pandemic dragged M&A to a nine-year low in 2020 as companies switched to cash preservation mode. But the rollout of vaccines and an expected economic recovery is reviving confidence among companies to strike deals, especially in the US.

"These are definitely the busiest times I've seen in my 25-year career," said Grant McGlaughlin, partner at law firm Fasken. "I don't think you can last at this pace for the whole year but hopefully in the second quarter and third quarter."

M&A deals hit an all-time high of $114.91 billion in the first quarter of 2021, according to data from Refinitiv. 

Companies raised C$19 billion ($15.2 billion) through share sales in the first quarter, the highest since the fourth quarter of 2010.

Mike Boyd, managing director and head of global mergers and acquisitions at CIBC, said he does not think he has ever seen capital markets as conducive to M&A as they are right now.

"If you look at the debt markets in particular, you have record low interest rates, and we've also got...strength in market capacity," to absorb the deal size, he said.

Boyd expects M&A activity to remain high thanks to low interest rates and a strong economic recovery that will remain in place for the next couple quarters at least.

Outbound rush

Bank of America Corp's BofA Securities Inc, Bank of Montreal's BMO Capital Markets and Toronto Dominion Bank's TD Securities Inc made up the top three banks for M&A, the data showed.

Canadian Pacific Railway's $25 billion bid for Kansas City Southern and Rogers Communications Inc's C$20 billion deal for Shaw Communications Inc topped the deals list.

Bill Quinn, head of M&A at Toronto Dominion, said while Canadian investors looking outside of Canada had tapered off last year because of the pandemic, the market is seeing a "return to normal".

The first quarter of 2021 saw nearly $50 billion in outbound deals, the second-biggest quarter on record, with about half coming from the CP transaction.

"In terms of Canadian M&A, we are seeing stronger growth in our market versus the US," said Sarfraz Visram, head of M&A at BMO Capital Markets.

US M&A activity rose 12.2 percent to $869.35 billion in the first quarter of 2021 from the fourth quarter of 2020, while Canadian M&A recorded 44.4-percent sequential growth in the same period, Refinitiv data showed.

"We've now clearly turned the corner," said Emmanuel Pressman, a partner at law firm Osler. "It's in part the renewal of confidence in cross-border M&A flows, both inbound and outbound."

Asian activity recovers

The Asian region recovered from the COVID-19 fallout earlier than in Canada. Deals involving Asia-Pacific firms totaled $1.2 trillion in 2020, up 12 percent from 2019. Seven of the year's 10 largest transactions were announced in the third quarter, which in total accounted for 40 percent of the year's deals by value.

Advanced technology and telecommunications companies surged to a 23-percent share of deal value, up from 14 percent in 2019, while retail and consumer products and services firms also reported growth.

Coronavirus-spurred growth in the technology sector will help drive M&A activity in the Asia-Pacific region in 2021, bankers and lawyers predicted in December 2020, with the potential easing of China-US tensions likely to revive Chinese outbound investment.

"COVID-19 has dramatically accelerated digitalization, e-commerce and fintech," said Jung Min, co-head of M&A at Goldman Sachs in Asia, excluding Japan.

"Companies that have benefited are now suddenly much larger in size and financial scale, creating significantly more potential to make strategic investments," he said.