Getting to the real deal

Deal-making is on the rebound. Motivated by interest rate cuts and a tide of incoming sellers, CEOs are beginning to once again view mergers and acquisitions (M&A) as fundamental to their strategies for achieving growth, securing talent and filling critical skills gaps.

According to the results of the KPMG 2024 Canadian CEO Outlook, 2025 is tracking to be a busy year for M&A, both for buyers and sellers. Unlocking full value from any transaction, however, requires a mix of both modern capabilities and solid deal-making fundamentals.

Several factors are breathing new life into the M&A market. Lowered interest rates are facilitating acquisitions from a cost-of-capital perspective. As a result, CEOs are taking advantage of more favourable conditions to help achieve growth and operational objectives inorganically, as well as to acquire skilled talent.

There’s also good news on the flip side of the equation: the pool of sellers is growing. Canada’s small- to medium-sized businesses (SMBs) in particular are emerging from challenging operating environments with a stronger desire to make a deal.

But while conditions for M&A may be clearing, CEOs aren’t necessarily ready to pounce. Only 41 per cent of Canadian CEOs in our 2024 survey characterized their organization’s appetite for M&A as “high”; while sizable, this is a noticeable decrease from the 67 per cent in 2022 and the 60 per cent in 2023 who said the same. Nevertheless, a significant portion of CEOs maintain a “moderate” interest in M&A (49 per cent Canadian and 40 per cent globally), which points to an overall favourable—if slightly reduced—inclination toward making deals.

Canadian CEOs are also less assured of their growth prospects over the next few years, expressing a confidence level that has decreased since 2023 and is currently at its lowest since 2020.

What’s tempering M&A attitudes and growth predictions? The answer is multi-fold but can be boiled down to an underlying sense of unease with today’s macroeconomic and geopolitical backdrop. While the post-pandemic economy has improved, CEOs are still finding it difficult to make transformative M&A decisions with confidence at a time when global conflicts, shifting international trade relationships and impending elections are introducing variables that only add uncertainty to the deal-making equation. 

76 per cent of Canadian CEOs are confident in the growth of their company over the next three years, down from 80 per cent in 2023

60 per cent of Canadian CEOs have already adapted their growth strategy and 40 per cent plan to but have not completed it

Consumer pullback has also suppressed M&A appetites. While consumer spending drives a significant portion of GDP, particularly in North America, Canadians who renewed their mortgages at higher interest rates and/or may be constrained in a more difficult employment environment are spending less. This has tightened margins across various sectors, leaving some CEOs focused more on protecting their core businesses than expanding them.

Sixty-one per cent of SMB owners say they plan on retiring in the next 10 years. Seventy per cent of them have a succession plan in place. This presents significant opportunities for larger M&A stakeholders and bodes well for corporate Canada as a whole. Why? Because ownership changes can usher in new leadership teams with new ideas, refreshed operational models and stronger appetites for innovation, all of which can culminate in productivity gains and stronger global competitiveness.

As noted, SMBs are ready to make a deal. Seventy-six per cent of respondents to our 2024 Private Enterprise^TM Business Survey say they would like to partner with a long-term investor that can help their company identify the skills and competencies needed to turn their business into a bigger one.

But one problem is that valuations have become harder to pin down. This isn’t surprising: ongoing economic turbulence and volatility in the public markets have resulted in less consistent financial performance for some companies, making it more difficult to home in on their long-term value. And while it’s common practice to draw on public company valuations when valuing a private company, heightened volatility in the public equity markets has made comparisons difficult.  

Given these challenges, it makes sense that buyers are placing more scrutiny on forward-looking valuations and opting to pay for real, materialized performance rather than prospective financials.

76 per cent of SMBs are looking for a long-term investor, with patient capital, that’s willing to invest in their business for a 10-year or longer time horizon

Ultimately, in M&A, there is an enduring truth: a deal may look promising on paper only to fall short of expectations. It’s therefore increasingly important that CEOs have at the ready the people, processes and technologies they’ll need to ensure their value-creation opportunities come to fruition.

No doubt, focusing on value creation as part of effective deal-making is key, but doing so requires the means to gather information and harness data in ways that improve your ability to make informed decisions. How? By leveraging data and AI to identify, track and quantify potential synergies and value creation opportunities before an acquisition. Then, by ensuring dedicated personnel, processes and activities are primed and positioned to realize that value after the deal.