Canadian dealmaking to rebound in 2024 says KPMG
After a weak year for Canadian dealmaking in 2023, this year is set to rebound as private equity firms look to deploy capital and family-owned businesses seek alternatives to succession.
With a brighter economic outlook too, KPMG in Canada expects M&A to pick up in the coming months and Neil Blair, president of KPMG Corporate Finance Inc., says lower rates and market confidence will be the catalyst.
"One of the big drivers for dealmaking will be private equity funds; a combination of a slower pace of portfolio company exits and a slower rate of capital deployment in 2023 in the private equity world will drive activity in 2024,” he said. “Private equity funds continue to sit on record amounts of capital and are under increasing pressure to return capital to investors through the sale of portfolio companies.”
The middle market will be a key part of this activity rebound with retiring business owners considering whether heirs will be ready – or willing – to take over the reins, prompting thoughts of selling the business instead.
Private equity funds are often an attractive option for business owners because they can sell a majority of the business but retain some equity and influence, allowing for an easier transition and opportunity for management teams," added Blair.
KPMG in Canada research revealed that 64% of SME owners plan to seek M&A or partnership opportunities or sell to a third party in the next few years.
"This level of ownership transition will provide an unprecedented transfer of wealth in Canada and a significant opportunity for corporations and private equity to invest," said Blair.
Interest rate cuts, which many economists believe will begin in the first half of this year, will bring greater economic certainty and confidence for buyers and sellers, and Blair advises firms considering a deal to start planning.
Selective deals
Despite new enthusiasm for deals, PE firms are not desperate to buy and will be selective in their targets says John Cho, KPMG in Canada's National Deal Advisory Leader.
"After a year of relative scarcity in the deals space, private equity funds will be looking more meticulously for high-quality, growth-sustaining businesses. Those types of assets will be in high demand this year, and we expect they will attract valuation premiums," he said.
