M&A deal volume up but value dips: report

There were 1,879 M&A deals across Canada in Q3 2017, according to PwC Canada’s first deals report. That’s up from 1,522 during the same period in 2016. The U.S. remained the largest outbound destination with deal volume growing 27% (from 245 to 310).

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The overall M&A market deal volume is up 23%, but deal value has taken a modest dip, notes the report. There were fewer mega-deals (those more than $1 billion) so far in 2017, which impacts the overall average deal values. Outbound deals reflected the overall market, as volume increased 17%, but at a lower average deal value.

“The strong North American economy and large pools of capital to invest contribute to a very active deal market in Canada despite the high valuations and an 80 cent Canadian dollar (on average),” says Dave Planques, national deals leader, PwC Canada. “Buyers should be focused on ensuring they have a strong value creation strategy for acquisitions.”

Read: Slower growth for Canada in 2018

Outbound deals to the U.S. were strong, adds the report, with volume growing largely due to deals in the technology sector and real estate sector.

In tech, there was strong growth in IT services and consulting deals, while software deals were roughly flat. As for the real estate sector, development and operations businesses saw strong deal activity, while real estate services were flat. Consistent with the broader trend, smaller outbound deals to the U.S. (between $50 million and $1 billion) saw robust growth, while outbound mega-deals to the U.S. (more than $1 billion) were down slightly.

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Another finding: private equity (PE) firms and pension funds have been highly active in the M&A space, with activity growing almost 40% in volume of buy-side and sell-side deals. The average deal size has increased by approximately 20% in 2017 for those deals with disclosed value.

The report provides the following tips for active buyers and sellers.

• Ask yourself, is now a good time to sell? Valuations are high and there is plenty of capital looking for deals, including a very well funded PE sector with plenty of dry powder.
• Buyers should stress test purchases. If you have capital to deploy, you’ll need a strong investment rationale that can justify the high valuations that you may need to pay to land a deal. Make sure to stress test any deal before signing.
• Post-deal value creation is key. Buyers need to have a concrete plan for changing the way the business operates, rather than just buying and holding. If you’re going to pay today’s high multiples, you’ll need a strong post-deal value creation strategy.
• Go where the market is less crowded. In the $25- to $50-million bucket, multiples are lower and there’s generally less competition (including less PE focus).

Read the full report.

Staff

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