TORONTO - Canadian energy, power and mining companies are expected to lead a rebound in dealmaking this year helped by lower interest rates, following a slump in overall mergers and acquisitions in 2023 to the lowest since the outbreak of COVID-19, bankers said.

Money markets are betting that the Bank of Canada (BoC), which raised interest rates to a 22-year high of 5% in 2023, could start cutting borrowing costs as early as April.

"This general consensus about how 2024 is going to be a more normalized environment is making its way into the boardroom," said Sarfraz Visram, head of Canadian and international mergers and acquisitions (M&A) at the Bank of Montreal, adding that his team was having extensive conversations with clients.

"If it pans out, we'll have a bumper year in M&A for sure."

Canadian announced M&A in 2023 dropped 27% to $183.9-billion from the previous year, LSEG data showed.

Citi, Goldman Sachs & Co and RBC Capital Markets were the top three financial advisors on announced M&A, the data showed.

Energy and power M&A hit a five-year high of $70.4-billion, up 56% from the previous year, fueled by deals such as Couche-Tard's $3.3-billion purchase of some of TotalEnergies gas stations and Canadian Baytex Energy's $2.5-billion bid for Ranger Oil.

The biggest deal of the year was a Glencore-led consortium's $9-billion acquisition of Teck Resources' steelmaking coal unit following a long battle, which drove mining M&A up 34.7% to $26.4-billion, a trend bankers expect to continue in 2024.

"I think one of the things we did see in 2023 was continued consolidation in the resource sectors, particularly energy," said Mike Boyd, head of Global M&A at CIBC.

"My sense is that will likely continue as well, driven by the benefits of scale and technology to lower costs and the largest companies targeting the most attractive regions."

The drop in overall Canadian dealmaking was in line with the worldwide trend, with global M&A dropping to about $3 trillion, its lowest level in ten years.

Visram said a tight funding market and a global trend of increasing regulatory scrutiny of deals still presented headwinds.

Initial public offerings (IPOs) remained at a standstill, with just one deal announced on Canada's main stock exchange the Toronto Stock Exchange in 2023, the smallest number in at least 23 years, the data showed, but dealmakers were hopeful for a change in 2024.

"There is a bit of a backlog in terms of not having been a market in the past year," said Alex Moore, partner at law firm Blake, Cassels & Graydon.

Toronto Stock Exchange operator TMX Group had about 1 600 companies in its IPO pipeline, a spokesperson said on Wednesday.

"We don't expect that we'd be returning to the highs of 2021, but with the backlog and a more optimistic outlook on the economy - if we could maintain that - then we could see companies start to come back to market for IPOs," said Moore.