Canada’s juniors face mergers, or sell offs

With predictions of a heated round of merger and acquisition activity this year put on hold because of capital constraints and low commodity prices, a survey by a division of the government-owned Alberta Treasury Branches said deal-making is at a seven-year low. However, ATB energy group director Victor Martinez said there are signs the pace is starting to quicken, as the financial squeeze on junior companies forces them to sell, despite the deep discounting of their gas assets.

The ATB study listed only 51 transactions involving companies and assets in the Western Canada Sedimentary basin up to July 15, compared with 96 over the same period last year and 130 in 2007.

The dollar value this year totaled C$24.5 billion, up sharply from last year’s C$12.9 billion, mostly because of the C$17.1 billion merger of Suncor Energy and Petro-Canada.

For the first quarter, 11 deals were completed, compared with 24 in 2008, but the second quarter edged up to 34 from 33 last year. There were another six in the first 15 days of July.

Martinez expects to see the momentum pick up, adding he knows some of his 30 customers are struggling to stay afloat.

“They have no options, so they’re looking to merge out or sell their companies,” he told the Calgary Herald. He said at least two junior companies have brought in new management teams to add individuals with capital or access to capital to rescue balance sheets during the economic recovery phase.

Investment dealer Peters & Co. emphasized that intermediate and junior companies are faced with “decreasing production levels (which it expects to drop 4 percent), quarter over quarter, the result of minimal capital spending and downtime from turnaround activities.”

—Gary Park