Earlier this week, I attended the ACG Toronto Capital Connection which is an annual event featuring a wide range of Canadian and US private equity firms, banks, specialty financing institutions and professionals focused in the mergers and acquisitions (“M&A”) and corporate finance space. At this event, it is always interesting to get a sense as to what is happening in the world of M&A across Canada and the overwhelming message this year was “It’s a Seller’s Market”.
What is driving this market? Factors include:
- There is a significant amount of capital in the market not only with Private Equity groups but companies have built up cash reserves since the last recession
- Companies are focused on growth strategies; especially for public and large private companies, and acquisitions are a means to achieving those strategies
- Banks and financing institutions are also aggressively seeking to deploy their capital and are providing favorable terms to companies looking to acquire other businesses
- There is a relative lack of quality in businesses that are making themselves available for sale in the marketplace. Those businesses with strong cash flows and sustainable business models – drive up valuation multiples when they do become available
While the majority of the discussion at the Capital Connection is toward the larger mid-market (earnings or EBITDA > $5 million), within our own client base we are experiencing an uptick in the number transactions that we’re seeing. The transactions include:
- Clients looking to grow and acquire complementary businesses
- Clients looking at retirement and succession planning
Clients being approached by larger corporations and getting attractive valuations related to the factors outlined above
Given these current state of affairs, it will be interesting to see how these trends continue. In Ontario, in particular, while the M&A market is expected to continue to be positive, it was suggested that it won’t necessarily be smooth sailing as there continues to be a high level of uncertainty with the Canadian dollar and what is happening to the south given our dependence on the US economy.
So what does this all mean for you? If you are looking to grow, now may be a good time from the standpoint of available financing and if you can find an opportunity that makes sense from a valuation perspective. On the other hand, if succession is on the horizon, then now may be the time to understand where you are at valuation wise and to take steps to ensure that your business is ready to capitalize on the higher valuation multiples that might be available.