An improving market for mid-sized corporate mergers and acquisitions is spurring more baby-boomer business owners to sell their companies.
“We’re seeing a lot more companies coming onto the market,” said Charles Addison, senior vice-president at MNP Corporate Finance, at a recent luncheon organized by the Vancouver chapter of the Association for Corporate Growth (ACG Vancouver). “We see the successive wave practically happening because of the demographics.”
Guy Heywood of BMO Corporate Finance BC noted that while the number of deals has fallen to 200 in 2012’s first half from 240 in the same period in 2011, the total value of M&A deals in Canada is up to $145 billion from $80 billion last year.
Several factors are behind the market’s steady improvement. Heywood noted that cash-rich companies are looking to expand in today’s slow-growth environment by acquiring smaller competitors.
He added that the return of key U.S. lenders into the Canadian market has increased competition for financing, which can drive up deal values.
Curtis Johansson, director at CAI Capital Management, said private equity firm investment in Canada has increased year over year since the 2009 recession. The number of private equity deals in Canada has risen to 95 in 2011 from 86 in 2010; total deal value is up to $8 billion from $5 billion.
Half of the deals were less than $50 million; a quarter were between $50 million and $250 million, suggesting mid-market M&A activity has continued to improve.
The relative strength of the Canadian economy has also continued to attract attention from private equity firms, particularly those based in the U.S.
Johansson noted that non-U.S. private equity investments in Canada have risen steadily over the past decade, with 57% of deals last year closed by non-Canadian investors.
“This speaks to the fact that Canada is an interesting place to consider investing. Opportunities in Western Canada, in particular, are garnering interest.”
Uncertainty over the direction of the global economy, the U.S. election and the European debt crisis remain negative factors, but the market appears to be taking most of it in stride. Addison noted that, despite ongoing turmoil, deal values have improved over the past five years.
Deals for smaller companies with less than $20 million in enterprise values have been completed for three to five times earnings this year compared with two to three times earnings in 2009.
Earning multiples have risen to between five and seven times earnings for companies with less than $100 million in enterprise value.
While another major economic or financial crisis could derail current progress, dealmakers remained optimistic that the market will strengthen beyond last year’s levels, especially with nearly $500 billion in private equity capital still waiting to be invested in North America.
Canada’s Venture Capital and Private Equity Association predicts that the number of private equity deals will rise 36% this year to 320. Thus far in the year’s first half, 160 deals worth a total of $7.6 billion have been completed. •
