(As originally published in FEI Canada F.A.R. member e-newsletter, June 2017)
How to ensure success in today’s deal economy
Canadian executives are forging ahead with reinvigorated confidence in the deal market and the Canadian economy overall, against a backdrop of unparalleled global uncertainty. In EY’s 16th Global Capital Confidence Barometer, we found more than half of Canadian survey respondents see the state of the local economy improving. That’s compared to only 10% this time last year – an impressive increase over a short period.
This confidence is helping drive mergers and acquisitions (M&A). In fact, 62% of Canadian executives surveyed said they are expecting to pursue an acquisition in the next year – a strong improvement from the 48% who had similar plans in the fall. This strong domestic view is supported globally, too. Canada is ranked one of the top five destinations globally to actively pursue acquisitions. So it’s fair to say we can expect healthy deal activity over the next 12 months.
EY’s global report outlined some top actions that can help define M&A success in today’s market. Here are a few takeaways for Canadian organizations:
Learn to live with uncertainty
Right now, Canadians see a variety of risks on the horizon threatening their core business. The potential increases in government intervention in corporate decision-making, as well as continued volatility in the commodity and currency markets are on their minds. Nevertheless, 53% of Canadian respondents are anticipating improvements to the global economy.
We’re finding recent political changes in Europe and the new US administration are not hampering M&A – and may actually create more opportunities. In fact, this uncertainty will likely spur companies with global operations, including Canadian players, to look at international acquisition opportunities as a way to secure and develop their global ambitions.
It’s clear uncertainty isn’t going away any time soon, so organizations should embrace it. Disregard boundaries and look for cross-border opportunities as a way to secure supply chains and ensure market access.
Your pipeline is your lifeline
Competition for quality assets is high. Completing rigorous and regular portfolio reviews will enable organizations to be strategically nimble and opportunistic.
Our Barometer showed Canadian respondents have very strong pipelines, with 45% looking at more than one transaction and nearly all seeing their pipelines improving or staying the same. But in order to grow deals to fruition, organizations need to nurture their pipelines. They need to get to know and understand the business and demonstrate their ability to be a competitive player.
On the other hand, they shouldn’t be afraid to walk away from a deal – and Canadians, for the most part, are not. Our survey shows executives are doing this using enhanced tools and methodologies to better evaluate transactions and understand the assets they’re intending to acquire. For example, 57% of our Canadian survey respondents have walked away from a deal, with 65% of those citing an issue uncovered during due diligence.
Reimagine the parameters of your business
It’s all about adapting your operating model to succeed in tomorrow’s market. Canadians list innovation as the second-most important trend to impact M&A markets in the next 12 months. Amid today’s constant change and disruption, the ability to “future proof” their business model is the key strategic initiative for 40% of our Canadian respondents. To achieve this, organizations will need to develop a digital strategy, work with the right external players and consider acquiring the innovation itself.
With no signs of the M&A market cooling, organizations need to prepare for a competitive landscape by nurturing their pipelines, investing in innovation and adapting to uncertainty. And while Canadians are bullish on the local and global economies, organizations here still need to perform rigorous and regular portfolio reviews to ensure they’re capturing the right opportunities. By harnessing data and innovation, leading Canadian companies will be better able to target the right deals, while showing the world they’re open to investment.