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Brookfield Asset Management Inc
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Canadian companies and pension funds are on a European acquisition binge, even as U.S. and Chinese buyers slash spending on takeovers there. Europe’s low valuations and the robust Canadian dollar are spurring deals by Canadian companies such as Brookfield Asset Management (BAM) and Alimentation Couche-Tard. “Canadian companies are basically punching above their weight in the European market,” says Julian Brown, head of corporate finance for Canada at Pricewaterhouse-Coopers in Toronto.
The transatlantic dealmaking is part of a shift in Canada’s outward focus away from the U.S. in favor of other foreign markets. America’s economic recovery has lifted stock prices, making assets more expensive, and cash-rich Canadian buyers are looking for new markets outside North America to deploy resources.
With Canadian companies and funds boosting spending on deals in Europe by 58 percent in the year’s first half to $15.1 billion, Canada was the second-biggest acquirer in Europe after the U.S., whose deal volume there fell more than 50 percent, to $54 billion. Canada’s economy is about one-tenth the size of its southern neighbor’s. Chinese companies cut European takeovers by a third in the same period, to $4.5 billion. Overall European acquisitions by foreign buyers fell 38 percent as Greece, Italy, and Spain dragged down the Continent’s economy.
Canada’s European acquisitions this year have run the gamut of industries, from Couche-Tard’s $3.5 billion deal for service stations operated by Norway’s Statoil (STO) to CGI Group’s (GIB) $3.1 billion acquisition of U.K. computer services provider Logica. Couche-Tard, the Laval (Quebec)-based operator of convenience stores, wants to “take a good shot at growth opportunities” in Europe, Chief Executive Officer Alain Bouchard said in July.
In June, Brookfield’s office property arm made its first U.K. deal in two years, spending £512 million ($795 million) on a group of buildings in London’s City financial district. More deals are likely, according to CEO Bruce Flatt. “There will be opportunities that will come along that will be similar to those in the U.S.” during the recent recession, he says. “Part of it is valuations that are more interesting, and part of it is the currency.”
Canada’s big pension funds, which typically manage most of their assets in-house and participate directly in buyouts, will also be key players. The funds are likely to be among bidders for Total’s (TOT) TIGF gas transport network, which the French oil company is seeking to sell for about €2.5 billion ($3.1 billion), according to people familiar with the situation.
Ontario Teachers’ Pension Plan, which manages about $117 billion, is expanding its seven-person London team, recently agreeing to buy Norwegian apparel group Helly Hansen from private equity owners for an undisclosed price. Last month the fund, Canada’s third-largest, announced a £73 million bid for Goals Soccer Centres, which runs U.K. sports fields. Economic troubles mean opportunities to buy companies that “can’t access other pools of capital today because of what’s taking place in Europe,” says Jane Rowe, the head of Teachers’ private equity arm.
Acquirers are getting more bang for their buck after the Canadian dollar in July touched its strongest level vs. the euro since the common currency’s establishment in 1999, reaching about C$1.23. They also have access to relatively cheap and abundant financing. Canadian corporations with investment-grade ratings saw their borrowing costs fall in July to just under 3 percent, the lowest since at least 1992. “We’ve never seen a more global focus by Canadian companies,” says Steve Mayer, a Toronto-based managing director at Goldman Sachs Group (GS). “A company that wants to transform itself to be a global player,” he says, needs “to have a presence in Europe.”
The bottom line: Canadian acquisitions in Europe totaled $15.1 billion in the first half of the year, ahead of China and second only to the U.S.’s $54 billion.