Despite the low Canadian dollar and other challenging economic conditions, Canadian companies say they are actively pursuing M&A opportunities in the near future. According to EY’s latest Canadian Capital Confidence Barometer, 61% of respondents plan to actively explore acquisitions in the next 12 months, compared to just 50% of global respondents.
“Business leaders here now realize we’ve been in this economic environment for 18 months,” says Doug Jenkinson, EY’s Transaction Advisory Services partner. “They’ve accepted that the Canadian dollar may not find stability in the near term, and they’re looking for new avenues to enhance their revenues and protect their earnings.”
According to the survey, companies admit they’re serious about acquisitions. In fact, 54% of Canadian respondents say they’re elevating the discussions to the boardroom level, which is considerably higher than 28% globally.
Optimistic outlook for economy
“There’s been a big increase in optimism in the Canadian economy recently,” says Jenkinson. “A full 98% of our survey respondents reported they see the economy as stable or growing, compared to just 70% one year ago. The ripple effect of this optimism is shown in companies’ growth plans.”
The ripple effect Jenkinson refers to is the jobs Canadian respondents plan to create. EY’s survey finds 61% of Canadian respondents are planning to create jobs and hire talent – significantly more than only 28% of global respondents.
Healthy M&A market
EY’s survey finds the valuation gap between buyers and sellers is closing, with 83% of respondents seeing buyer and seller expectations vary less than 10%, which is a big improvement from 57% one year ago.
Canadian respondents are also being more disciplined and prudent in their evaluation of acquisition opportunities, with 88% reporting that they have walked away from a transaction.
“When we asked why they’re walking away, the most common reason respondents provided was that they just couldn’t achieve synergies and the transaction didn’t meet expectations,” says Jenkinson. “It makes sense, then, that we’re also seeing an increased focus on due diligence and pre-closing integration work. Simply put, buyers want to get it right before completing a transaction.”