Record M&A and a strong Canadian economy in the face of geopolitical uncertainty
Our 16th Global Capital Confidence Barometer finds that Canadian respondents are driving forward with invigorated confidence in the deal market and the Canadian economy against a backdrop of unparalleled global uncertainty.
Confidence in global and local economies
Canadian respondents are bullish on the global and local economies, even with today’s turbulent political climate. More than half of Canadian respondents see the state of the local economy improving, compared to only 10% this time last year.When looking at the state of the global economy, there are also more positive signs, with 53% of Canadian respondents anticipating improvement. However, Canadian respondents see risk to their core business on the horizon, in particular the potential increases in government intervention in corporate decision-making and the continued volatility in commodity and currency markets.
Top destination to pursue acquisitions
For Canadian respondents, expectations are high that the strong M&A market in 2016 will continue through 2017 and beyond. For the fifth survey in a row, Canadian respondents expect to actively pursue acquisitions at a rate above the historical average. They expect more M&A activity for this year, with 62% actively pursuing deals, compared to 48% six months ago.The strong domestic view on M&A was, for the second period running, supported by global respondents’ view that Canada is one of the top five destinations globally to actively pursue acquisitions. Close to home, our fellow NAFTA member countries are investing heavily in Canada, with Canada ranking as the #1 and #2 foreign destination for US and Mexican respondents, respectively. Canada is also on the radar for South American countries, appearing in the top 10 for most jurisdictions represented.
Appetite for strong M&A activity
The strong interest in Canada as a top global investment destination marries well with the most important M&A trend that Canadian respondents expect to see in the next 12 months. Nearly a quarter (24%) of Canadian respondents believe that there will be an increase in cross-border deals as companies look to secure supply chains and ensure market access.
The complexity from recent policy changes and geopolitical 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.In addition, the recent policy changes introduced by the US Administration are not hampering M&A opportunities, with 34% of Canadian respondents believing that the policy announcements will in fact create more opportunities. Further solidifying this notion, more than 75% of Canadian respondents believe that Brexit and the rise of anti-EU parties in upcoming European elections will have no impact on their M&A plans in the region.
Focus on innovation and digital transformation
The second most important trend that Canadian respondents believe will play out in the M&A markets in the next 12 months is the need to accelerate innovation. In today’s age of constant change and disruption, the ability to “future proof” their business model is the key strategic initiative for 40% of Canadian respondents.
To achieve this goal, more than 20% of them see an increase in acquisitions of innovative startups by larger, established players driving M&A. The future is digital, but trying to capture digital opportunities results in many implementation and change management hurdles. Canadian respondents are struggling more than their global peers to fully capture the potential value of digital transformation, with 20% missing the mark, compared to only 11% of global respondents.Developing a digital strategy, working with the right consultant, and often resorting to acquiring the innovation itself are the preferred routes.
Robust deal pipeline expected for 2017
Today’s record M&A market has shown resilience which looks set to continue through 2017. Canadian respondents have very strong pipelines, with 45% looking at more than one transaction and 98% seeing their pipelines improving or staying the same. In terms of the global and Canadian M&A landscape, Canadian respondents are more positive on the number of acquisition opportunities, the quality of these opportunities and their likelihood to convert opportunities into acquisitions.
There are no signs of the M&A market cooling, especially given executives’ prudence and new diligence methodologies. As an example, 57% of Canadian respondents have walked away from a deal, and 65% of those who walked away cited an issue uncovered during due diligence.Executives are using new tools, including data-driven analytics, to better understand the assets they are acquiring and ensure that hidden issues are identified. Armed with this information and data, Canadian respondents are able to target the right deals and successfully integrate acquisitions into their operations.
Transaction Advisory Services
+1 416 943 3589
Download Canada highlights (PDF) Press release: Canada is a top five destination globally to pursue acquisitions