Investors are witnessing the greatest merger movement in history

    TORONTO, May 17 /CNW/ - CIBC (CM: TSX; NYSE) - Canadian M&A activity is
nearly double what it was at this point last year and has accounted for an
impressive 44 per cent of the increase in the TSX Composite over the last 12
months, finds a new report by CIBC World Markets.
    Canadian M&A deals have topped $175 billion so far in 2007, including
$82 billion in announced transactions in the month of May alone. This comes on
the heels of an 80 per cent jump in the value of M&A transactions in 2006.
Globally, M&A transactions are up 60 percent over the previous year to an
astounding $2 trillion.
    "Investors are witnessing the greatest merger wave in history," says Jeff
Rubin, Chief Economist and Chief Strategist at CIBC World Markets. "The result
is the emergence of global behemoths with GDP-like capitalization. And their
creation has typically involved the payment of generous premiums, fueling
stock market rallies around the globe."
    At the global level, takeover premiums have averaged 20 per cent.
Premiums paid in the Canadian market over the last 12 months have averaged
30 per cent and in some cases have gone as high as 70 per cent. In the mining
sector, home to many of the country's largest deals in the last year, premiums
have approached 40 per cent.
    The report finds that these premiums have played a critical role in the
performance of the TSX in the last year. M&A-related valuation changes have
accounted for 44 per cent of the index's overall 2,000 point increase in the
last 12 months. M&A-related valuation pressures have accounted for all of the
increase in the mining sector and a good deal of the gains for telecoms and
consumer discretionary stocks in the last year.
    Mr. Rubin notes that the key forces underpinning this unprecedented M&A
wave remain in place and should lift the TSX to the 15,000 level by year end.
These include low interest rates, ample cash flows, and strong commodity
prices. He also notes that the growing involvement of well-financed private
buyout firms, pension funds and emerging market players will continue to buoy
deal volumes.
    One of the key differences between this M&A cycle and those in the past
is that today's deals are mostly financed by cash. Globally, pure cash deals
have been worth US$6 trillion in the last three years, accounting for more
than 60 per cent of overall deal flows. Pure share exchanges, which accounted
for almost half of deal volume in the late 1990s, have accounted for just 15
per cent of transactions in this timeframe.
    "One key difference in this M&A wave is that firms and acquirers are
playing with their own "real" money, instead of the grossly overvalued shares
that some tech companies exchanged during the dot.com wave," says Mr. Rubin.
"TSX firms have nearly 20 per cent more cash on hand these days than a year
ago, a tribute in part to strong resource sector cash flows. And last year was
one of the richest ever on record for cash holdings in both the Canadian and
global markets."
    While the global merger wave has driven concerns over the hollowing out
of corporate Canada in light of the recent disappearance of some venerable TSX
listings in traditional sectors like mining, Mr. Rubin notes that over the
past five years Canada has been a net acquirer of firms. The value of Canadian
acqusitions of foreign companies is about $20 billion more than the value of
foreign purchases of Canadian firms.
    Unlike past merger waves in Canada including the recent dot.com wave, the
bulk of the acquisitions are not coming at the hands of U.S. firms. Overseas
players have the upper hand these days, with Europe recently eclipsing the
U.S. as the top acquirer of global companies. Firms from emerging markets like
Brazil, Russia and India are increasingly joining the fray. With $35 billion
of deals in the last year, acquisitions by emerging market enterprises have
been three to four times more important, relatively speaking, to the Canadian
M&A market than the U.S. market.
    The full CIBC World Markets Monthly Indicators report is available at
http://research.cibcwm.com/economic_public/download/mimay07.pdf.

    CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets products,
investment banking, and merchant banking to clients in key financial markets
in North America and around the world. We provide innovative capital solutions
and advisory expertise across a wide range of industries as well as top-ranked
research for our corporate, government and institutional clients.