The 2017 report by Citigroup and research firm Mergermarket on the state of the mergers and acquisition market in this country has just been released. The findings suggest 2017 will be a very busy year on the M&A front as Canadian companies continue to look for growth domestically and elsewhere.
The three busiest sectors are expected to be financial services, energy, and industrials. Each sector will see increased M&A in 2017, Here are three M&A deals I believe investors would love to see in the coming year — one from each sector.
Financial services
Toronto-Dominion Bank (TSX: TD)(NYSE: TD) CEO Bharat Masrani is on record as saying his bank is in the market for acquisitions both here in Canada and in the U.S. Down south, Masrani is looking for banks operating in the southeastern part of the U.S. and would entertain buying credit card portfolios such as the US$2.2 billion Nordstrom portfolio it acquired in 2015.
In fact, with the exception of Canadian Imperial Bank of Commerce, which is in the middle of trying to nail down its acquisition of Chicago-based PrivateBancorp, I would suggest you could see U.S. acquisitions from every one of them in 2017.
The bank Toronto-Dominion Bank should go after is SIVB Financial Group (NASDAQ:SIVB), a California bank that got its start financing the dreams of technology entrepreneurs and has since branched out to helping their families with personal banking and wealth management.
With a market cap of US$8.9 billion, it would be a bigger acquisition than the one CIBC is currently trying to complete, but one that could really differentiate any bank that’s successful. It would also be a good way to better integrate technology investors here in Canada with those in the U.S.
From a return-on-tangible-equity standpoint, SIVB Financial Group’s return as of September 2016 was 12.5% — significantly higher than a majority of the U.S. regional banks and 150 basis points higher than PrivateBancorp’s.
Energy
Although the price of oil has bounced back considerably over the past year, it’s still relatively volatile, and that might keep some potential buyers on the sidelines.
However, an acquisition of one of Canada’s larger independent oil and gas companies by Loews Corporation (NYSE: L), a holding company based in New York run by the Tisch family, might not be as farfetched as it sounds.
The Tisch family are probably best known for buying CBS in 1985 and selling it 10 years later for a US$1.1 billion profit. They are value investors to the core. In recent years, they’ve taken some serious hits from their oil and gas investments: Loews owns 53% of Diamond Offshore Drilling Inc., an owner of offshore drilling rigs and provider of offshore drilling services to oil and gas companies, and 49% of Boardwalk Pipeline Partners, LP, an operator of natural gas pipelines in the U.S.
As I said, the Tischs love value, and no better value exists in the oil patch than Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE). Fool.ca contributor Nelson Smith called Penn West one of Canada’s 10 cheapest stocks in December, and Karl Utermohlen recently examined how Penn’s restructuring plan makes it a stock to watch in 2017.
Stranger things have happened.
Industrials
This last one might just be the craziest of the three M&A ideas, but if industrials are said to be looking to cut costs, a combination of Finning International Inc. (TSX: FTT) and Toromont Industries Ltd. (TSX: TIH) would certainly accomplish that, bringing together the world’s biggest Caterpillar dealer in Finning with Toromont, itself a Caterpillar dealer in eastern Canada, but also North America’s largest supplier of refrigeration equipment; it’s the preferred ice-rink equipment supplier to the NHL.
Clearly, Toromont is financially more stable than Finning and would likely have some serious reservations about the hookup, but if Finning were to ever get its groove back, the combination would allow the two companies to save on the Caterpillar side of the business while expanding the refrigeration business outside North America.
It’s a win/win that will likely never happen, but it’s one investors would surely welcome.
