Canada's M&A Landscape Q2 2024: Special Edition on Quebec

July 24, 2024

Written By Jean Tessier, Julia Qian Wang, Vanessa Trépanier, Sam Kennedy and Chloe SooYun Cho

In this special edition of Bennett Jones' quarterly M&A update, we look at deal activity and the investment climate in Canada with a focus on the Quebec market. The second quarter of 2024 and the year so far has been one of notable transactions, continued investment in Quebec's energy transition innovation efforts, an interest rate cut (followed by another in July), tax and regulatory changes to consider and both bright spots and challenges for private equity and venture capital.

M&A Activity Q2 2024

All numbers are according to Bloomberg data in U.S. dollars unless otherwise stated (announced, completed or pending deals—excluding those that have been terminated or withdrawn—where a Canadian company is the acquirer, target or seller) as of June 30, 2024.

The aggregate volume of Canadian M&A transactions continued its up-and-down pattern in the second quarter of 2024. Q2 2024 was the third best quarter since the beginning of 2023 by volume. The number of deals stood at 666 and deal count has now risen for three consecutive quarters.

Canadian M&A Deal Activity

Activity increased across the board in Q2, from small to mid to large sized transactions. June was the most active month in both M&A volume and the number of deals.

Monthly M&A Deal Activity 2024

Quebec-based companies have participated in two financial services deals collectively valued at almost $10 billion. One is a fintech go-private worth $6.3 billion, announced in April. On June 11, Montréal-based National Bank of Canada announced its acquisition of Canadian Western Bank for $3.66 billion.

On June 24, CDPQ and private equity firm TPG announced they will acquire Aareon—a European provider of SaaS solutions for the property industry—from Aareal Bank and Advent International for $4.18 billion. Earlier in the month, CDPQ sold its stake in Budapest Airport in a $3.37 billion transaction.

In the mining sector, the fourth largest transaction is for the acquisition of uranium deposits in Quebec. The fifth largest transaction involves the merger of two Quebec gold companies.

While this latest data shows that the Canadian M&A landscape in Q2 2024 remains somewhat spotty with monthly ups and downs both on the dollar value and deal count metrics, Q2 2024 marks a healthy increase on both fronts when compared to Q1 2024. Notable transactions in finance, energy, technology, healthcare, and mining highlight strong sector participation. Looking ahead, the M&A market is expected to remain fairly dynamic across the country, particularly in Quebec.

Investment in Quebec's EV Industry

Quebec is positioning itself to become one of North America’s leaders in energy transition innovations. The province focuses on creating an electric vehicles (EV) battery hub by investment in an ecosystem designed to support critical minerals mining and transformation, electrochemical processes, transport electrification and decarbonization initiatives. Quebec’s leading tax incentive regime and the strategic support from Quebec institutional investors and their federal counterparts in large capex projects fosters investment opportunities and positions the province as an attractive destination, notably for mining companies and other suppliers in the EV battery supply chain.

Quebec attracted a record of C$13 billion in foreign direct investment for the fiscal year ending March 31, according to Investissement Québec. This is more than double last year's then-record high of C$6 billion. The recent spike in foreign investment is led by Sweden's Northvolt, who announced it will build a C$7 billion battery megaplant east of Montréal. Billions of dollars in additional investments in Quebec's EV manufacturing chain have also been announced by U.S. and South Korean companies.

Regulatory Developments

Interest Rates

The Bank of Canada lowered its policy rate by 25 basis points to 4.75 percent on June 5, 2024. This was the first rate cut in four years. The Bank then reduced the policy rate to 4.5 percent on July 24.

The authors of Bennett Jones' 2024 Mid-Year Economic Outlook, led by former Bank of Canada Governor David Dodge, expect the Bank of Canada to make one or two additional quarter-point cuts by the end of the year. The U.S. Federal Reserve is likely to cut once, by a quarter point, by year-end.

Under the Outlook’s scenario, the policy rates in the two economies will be reduced at different paces, but to the same floor of 3.0 percent to be reached early in 2026. Inflation is expected to reach the 2 percent target in Canada by the end of 2025 and in the United States by early in 2026.

Capital Gains Inclusion Rate

The 2024 federal budget raised the inclusion rate on capital gains realized annually above $250,000 by individuals, and on all capital gains realized by corporations and trusts, from one-half to two-thirds effective June 25, 2024. The government suggests that the measure increases tax fairness and that it will affect only a small proportion of taxpayers. Many in the business community have said this will dampen investment. Time will tell if the measure will affect M&A activity in Canada.

Mining and Bill 63

Quebec stands out as one of Canada's most favorable jurisdictions for mining activities, thanks to its friendly regulatory framework and tax incentives. The province is particularly focused on critical minerals and has established a leading tax incentive regime to encourage investment in this sector.

Bill 63, An Act to amend the Mining Act and other provisions, was announced on May 27, 2024, marking Quebec's commitment to modernizing mining legislation to reflect its long-term environmental and sustainable goals. Maintaining the current regulatory regime, including tax incentives for critical minerals investment, and signaling Quebec's long-term commitment to being a major player in the mining industry are crucial.

PE and VC Activity in Quebec

Réseau Capital released its Q1 2024 market overview of venture capital (VC) and private equity (PE) investments in Quebec on May 17. There are a number of bright spots and also some ongoing challenges to investment.

For both VC and PE, the value of investments was up in the first quarter and the number of deals was down. Quebec represents 23 percent of Q1 deal flow and 45 percent of the VC investments in Canada. The average size of VC investments in Quebec stands at $20.09 million, the highest in the country. Quebec represents 55 percent of private equity deals in Canada and 73 percent of total investment. The average transaction size of PE deals was $38 million, its highest level since 2019.

Réseau Capital says that challenges to VC and PE investment have included inflation, the global economic and geopolitical environment and concerns about consumer confidence.

Looking Ahead

Continued high-value deals in key sectors suggest a healthy level of activity for the remainder of 2024. Stakeholders should stay alert to opportunities and sector trends to capitalize on improving market and economic conditions.

While there may be shifts in commodity preferences, Quebec's geological potential and favorable regulatory environment position it well to attract foreign investment, fostering continued growth in the mining sector. It's a positive outlook for the Quebec mining industry.

Bennett Jones M&A Practice

Bennett Jones' Mergers & Acquisitions practice spans all industries—particularly those that drive the Quebec and Canadian economies. To discuss the developments and opportunities shaping the M&A landscape, please contact the authors.

Authors