Inflation, supply bottlenecks could slow dealmaking in Canada after record year

Pent-up demand for dealmaking from 2020, when COVID-19 roiled global markets, helped last year's record activity.

Low interest rates, and strong debt and equity markets that propelled Canadian mergers and acquisitions (M&A) to an all-time high in 2021 would underpin robust dealmaking this year too, M&A bankers said, though another record was unlikely.

Pent-up demand for dealmaking from 2020, when the coronavirus pandemic roiled global markets, helped last year’s record activity. But with inflation and supply chain bottlenecks threatening to derail economic recovery, dealmaking could slow down this year, they said.

Global M&A also hit a record last year, comfortably erasing the high-water mark that was set nearly 15 years ago, as an abundance of capital and sky-high valuations fueled frenetic levels of dealmaking.

In Canada, over $349 billion worth of M&A deals were announced in 2021, making it the busiest year on record, compared with $148.2 billion in 2020, data from Refinitiv showed.

“Looking ahead to 2022, I expect the M&A market to continue to be strong as the fundamental drivers remain in place – low interest rates, and strong debt and equity markets that are rewarding growth,” said Mike Boyd, head of Global M&A at CIBC.

Boyd expects the resurgence in activity seen in the commodities sectors to continue.

Railroad operator Canadian Pacific’s contentious $27 billion takeover of U.S. railway Kansas City Southern topped the charts for last year’s biggest deals.

Transportation and industrials led the way last year, with energy sector making a strong rebound, helped by recovery in oil and gas prices.