The energy and materials industries have emerged from the recession in better shape than many others, and companies in these sectors are well-positioned for acquisitions, a new PricewaterhouseCoopers report shows.

A review of debt levels of Canadian companies from 2007-2009 shows that overall, Canadian companies fared well the recession compared to their global counterparts, with lower debt levels and stronger cash balances. Companies in the energy and materials sectors managed particularly well.

“The energy and materials companies weathered the recession well and are poised for merger activity and can tap into public equity and debt markets to strengthen their ‘war chests,’” said Kristian Knibutat, national deals leader for PwC.

The report predicts that energy and materials companies will take advantage of their buoyant situation by engaging in opportunistic mergers and acquisitions in the months ahead, increasing organic investment and resuming new halted projects.

Companies in these sectors will also likely tap public equity and debt markets to further strengthen their cash balances, and revisit share buybacks and dividend policies.

Meanwhile, the forestry, industrials and media/technology sectors fared the worst during the recession. More than other industries, PwC found that this triad was most affected by difficulty in securing refinancing as cash balances dropped and debt-loads rose, and in 2009, companies in these sectors suffered the worst default experiences.

“Companies in the industrial, forestry and media/telecom sectors faced significant financing challenges from 2007-2009,” said Knibutat.

Notable debt defaults included Nortel Networks ($5.2 billion), Canwest Media ($3.5 billion), Abitibi-Consolidated ($4.6 billion), Cinram International ($1 billion), Abitibi-Bowater ($423 million), Fraser Papers ($28 million) and Grant Forest Products ($636 million).

The report notes that overall, Canadian corporate leverage was at a 17-year low at the height of the credit bubble.

“This relatively low leverage helped Canadian companies weather the economic downturn,” Knibutat said. “Some firms were even well positioned to capitalize on opportunities presented by the recession.”

IE