Private equity and succession-led deals will lift M&A in 2024

TORONTO, Jan. 16, 2024 – Dealmaking in Canada will pick up this year as private equity funds look to deploy capital, family-owned businesses look to find new partners and economic pressures begin to ease, says KPMG in Canada, the No. 1 mergers and acquisitions advisor in Canada last year.

“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,” says Neil Blair, President of KPMG Corporate Finance Inc. “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,” Mr. Blair adds.

Mr. Blair notes that private equity funds and corporates will be looking for opportunities in the middle market in particular, as the generational shift of business owners retiring continues to accelerate, creating new opportunities for buyers.

“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. 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,” Mr. Blair says.

A recent KPMG in Canada survey of small- and medium-sized businesses found nearly two-thirds (64 per cent) plan to pursue a merger, joint venture, partnership or acquisition within the next three years, and almost seven in 10 (69 per cent) said they intend to sell to another company or third party within the next three to five 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,” says Mr. Blair.

Mr. Blair notes that many economists expect central banks to start cutting interest rates as soon as the first half of 2024, potentially leading to more certainty about the economy and confidence among buyers and sellers. “Timing is everything in the market, so business owners who are thinking of selling this year need 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,” he says.

John Cho, KPMG in Canada’s National Deal Advisory Leader, says that amidst the backdrop of an increased supply of deal opportunities, private equity funds will be more selective about their targets this year. “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 says.

KPMG Corporate Finance in Canada acted as the financial advisor on 45 transactions last year, the most of any firm, according to data compiled by Refinitiv. KPMG took the top spot in Refinitiv’s league table rankings (by volume) and also ranked No. 1 over a five-year period from 2019-23, advising on 237 deals. League table rankings include eligible mergers, acquisitions, repurchases, spin-offs, self-tenders, minority stake purchases and debt restructurings.

KPMG Corporate Finance focuses on providing a broad range of investment banking and advisory services to its domestic and international clients, in both the public and private sector. Our professionals have deep industry experience and knowledge in advising clients on mergers and acquisitions, divestitures, raising capital buyouts, financings, debt restructurings, equity recapitalizations, infrastructure project finance, capital advisory, portfolio solutions, fairness opinions, and other advisory needs. The team has a distinguished track record working with a wide range of Canadian businesses with diverse transaction objectives and delivering successful outcomes for our clients.