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Canadian executives pursuing M&A at record pace

Global Capital Confidence Barometer | Canada highlights | 18th edition

Canadian executives are intending to pursue acquisitions at a record pace

The next 12 months are shaping up to be one of the strongest M&A periods in Canadian history, according to the results of the 18th Global Capital Confidence Barometer. Survey results show 78% of Canadian executives intend to actively pursue M&A in the next 12 months — setting the highest mark since EY started tracking the data in 2009.

Deal intentions abound

In recent years, Canada has enjoyed a strong M&A cycle, though it’s consistently lagged behind record years south of the border. Early results suggest, however, that 2018 may be the year that Canadian deal making takes centre stage. Backing up the record pace for deal intentions is the fact that 78% of Canadian respondents see the local M&A market improving over the next 12 months, and 93% see the global M&A market improving. As well, 73% of Canadian respondents expect their M&A pipeline to increase in the next 12 months, compared to only 33% just 6 months ago.

Further strengthening the optimism is that Canadian respondents are also anticipating continued overall improvement in the local and global economies. Eighty- six percent of respondents see the Canadian economy as improving. That’s a marked increase from 12 months ago when just 49% said the same. Canadian respondents are showing similar confidence in the global economy, with 87% expecting improvement — above 49% this time last year.

The world is taking notice of recent positive economic developments and turning to Canada as a top investment destination. Canada was identified as the third top investment destination in the world by global respondents. This is the highest ranking Canada has achieved in survey history, and indicates the growing attractiveness of the Canadian market.

Geopolitical uncertainty tops concerns

Despite this overall positive outlook, there are still areas of uncertainty for Canadian executives, particularly around the threat of economic nationalism and the looming spectre of trade wars. Potential changes to NAFTA are on the minds of Canadian respondents, as evidenced by almost half (49%) listing changes in trade policy and protectionism as the greatest threat to the growth of their business.

Outlook stabilizes

Survey results show a tempering of expectations on the future Canadian corporate earnings and stock market performance, with the outlook shifting from improving to stable. On the local level, 66% of Canadian respondents have stable confidence in corporate earnings, compared with 33% just 6 months ago.

Similarly, 52% have stable confidence in stock market valuations, compared to 41% last fall. An important stimulant for corporate growth is the likelihood of increased government expenditure on infrastructure projects. Eighty-four percent of Canadian respondents anticipate increased government investment in infrastructure over the next 12 months. These investments, overwhelmingly related to technology infrastructure and transportation, will have a positive impact. Sixty-two percent of Canadian respondents believe that it will increase their corporate growth rate.

Portfolio reviews spur activity

Canadian respondents also believe that portfolio transformation, including buying and selling assets to reshape the corporate portfolio, will be the leading item on boardroom agendas this year. In an era of accelerating change, companies are required to be nimble and evaluate their portfolios on a regular basis. Every one of our Canadian respondents reviews their portfolio on at least an annual basis, with one third (33%) doing a full review more than twice a year. Interestingly, 63% of Canadian respondents identified an asset to divest in a recent portfolio review, either because it was underperforming or at risk of future disruption. Once an action is determined, 86% of Canadian respondents will execute on their plan within the year.

Market strength ahead

Overall, the Canadian M&A market — and the economy in general — has been given a strong vote of confidence in this edition of the EY Capital Confidence Barometer. M&A has become one of the key avenues for growth, and to streamline businesses. We are seeing more parties come to the table, with 90% of Canadian respondents expecting more competition for assets.

Finally, we are encouraged about the overall health and longevity of this deal cycle, as 72% of Canadian respondents have decided to walk away from a potential transaction. The primary reason for walking away is they are not willing to overpay for assets — a sure sign of a healthy and sustainable deal market.

Doug Jenkinson

Doug Jenkinson

Transaction Advisory Services

+1 416 943 3589

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Download Canada highlights (PDF) Press release: Canada named the third top investment destination by global executives

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Doug Jenkinson
Transaction Advisory Services
416 943 3589

Murray McDonald
Canadian Leader
Transaction Advisory Services
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Jason Marley
Senior Manager
Transaction Advisory Services
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EY Canada Transactions Advisory Services team