Mining and energy aren't the only Canadian sectors showing promising signs in M&A activity of late. A recent Financial Post article reports that Canada's forestry industry is also seeing a rise in sales and deal activity. The Post's article highlights the U.S. housing market rebound and a shift towards Asian markets as key contributors to the upswing in Canadian forestry.
Canada's lumber companies struggled following the 2008 crisis as the U.S. housing market hit a standstill. With its main market stalled, the industry was forced to turn to new customers, pivoting to China, and increasingly to India and Japan, to diversify its market reach and tap alternative sources of revenue. The U.S. economy has since improved, and the rise in U.S. housing starts has been another positive development for Canadian lumber corporations.
Increased sales and revenue have lead Canada's lumber companies to seek new acquisition opportunities below the border, primarily in the southern U.S. Although domestic acquisitions have not seen the same jump, the trend is positive nonetheless. Interestingly, the article explains that the industry's increased focus on U.S. acquisitions is related to the need to diversify supply sources. This southward shift in M&A activity is a way of ensuring market access to the U.S. in the face of uncertain circumstances here at home, including the ambiguity surrounding Aboriginal Title and its potentially dramatic effect on lumber operations in Canada, a pine beetle epidemic in B.C., and continuing tensions surrounding U.S. import barriers on softwood lumber.
While things are picking up on the lumber side of the forest industry, the pulp and paper market has not seen the same level of growth. Instead, a decreasing demand for paper, due to the ever-growing reliance on electronics, has led many Canadian paper corporations to divest their non-core businesses. According to the report, many of the buyers appear to be U.S.-based private equity firms.
In general, the developments in the industry have been positive. The ability of lumber companies to adapt and seek out new markets not only for sales, but also supply, is encouraging. Industry watchers will be on the lookout for continued activity in this second half of 2014.
Norton Rose Fulbright Canada LLP
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