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The dip in corporate deals activity in Canada in the first half of 2019 is likely to continue into the third quarter as economic uncertainty creates market volatility and asset valuations remain elevated, according to bankers and lawyers.

Mergers and acquisitions by Canadian companies fell to $38.6 billion in the second quarter, the lowest level since the third quarter of 2017. That brought the value for the first half to $91.3 billion, a 32% decline from a year earlier, which was the strongest first half since 2015, according to Refinitiv data.

Canadian pension funds, along with Brookfield Asset Management and some of its arms, remain active, accounting for seven of the top 10 deals in the first half, helping mitigate some of the pullback by corporates, according to Grant Kernaghan, managing director of Canadian investment banking at Citigroup.

“We’ve seen a very long trend of increasing valuations… and as overall market valuations increase, activity levels should drop,” Kernaghan said. “There are still deals being done, but people are cautious that there’s an increased risk of a valuation correction going forward.”

Large transactions in the first half included the acquisition of Ultimate Software Group by a consortium including the Canada Pension Plan Investment Board, Brookfield Asset Management’s purchase of 62% of Oaktree Capital Group, Brookfield Business Partners’ takeover of Australian Healthscope and private equity firm Onex Corp’s acquisition of WestJet Airlines.

“As you move into the third and fourth quarter of the year, you will have been through UK elections, you’ll be that much closer to a U.S. and Canadian election, there’s likely to be more tension with China,” said Emmanuel Pressman, partner at Osler Hoskin & Harcourt law firm, one of the advisors for Goldcorp in its takeover by Newmont Mining Co, the biggest deal during the period.

“All of which creates more regulatory risk and uncertainty.”

Equity raisings slipped 39% to C$11.6 billion ($8.9 billion) in the first half from a year earlier, while debt issuances fell 4.6% to C$91.5 billion.

At least 26 deals were valued at more than a billion dollars during the first half, the data showed.

($1 = 1.3107 Canadian dollars)

(By Nichola Saminather; Editing by Chizu Nomiyama)