Private equity funds will be 'one of the big drivers for dealmaking'
Canada is poised for increased dealmaking in 2024, driven by factors such as private equity funds seeking capital deployment, family-owned businesses seeking new partnerships, and a more favorable economic environment, according to data from KPMG in Canada.
Neil Blair, president of KPMG Corporate Finance Inc., highlighted the key drivers behind this trend.
“After a challenging year for dealmaking, activity should start to spring back to life this year as interest rates start to come down and economic confidence starts to creep back into the market,” he said.
“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. 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,” Blair added.
Blair also highlighted the impact of the generational shift among business owners, noting that private equity funds and corporates will be looking for opportunities in the middle market.
“Many private companies haven't addressed succession for a variety of reasons – there's no next generation to pass the torch to, or sometimes they're just not ready, willing or able to take over – so selling makes the most sense,” Blair says. “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.”
A new KPMG survey found that nearly two-thirds (64 percent) of small- and medium-sized businesses plan to pursue mergers, joint ventures, partnerships, or acquisitions within the next three years.
Additionally, almost seven in 10 (69 percent) intend to sell to another company or third party within the next three to five years, paving the way for “an unprecedented transfer of wealth in Canada and a significant opportunity for corporations and private equity to invest.”
Economists' expectations of central banks cutting interest rates in the first half of 2024 are seen as a potential catalyst for increased deal activity. Blair advised business owners considering selling this year to “start the planning process now so they can be ready to execute their plans when the economy improves and the cost of capital comes down.”
“Timing is everything in the market,” he said.
John Cho, KPMG in Canada's National Deal Advisory Leader, emphasized that private equity funds will be more selective in their targets this year, focusing on “high-quality, growth-sustaining businesses.”
“Those types of assets will be in high demand this year, and we expect they will attract valuation premiums,” Cho said.
