As 2016 draws to a close, Ernst & Young has released its 15th edition of its Global Capital Confidence Barometer (the GCCB), which looks forward toward the trends and expectations in the M&A market for 2017. The GCCB is survey of more than 1,700 senior executives, including 52 Canadian executives, from large global companies located in 45 countries around the world, representing 18 industry sectors.
This past year was an active time for M&A and according to the GCCB, this trend will continue into the new year. In total, 57% of all executives surveyed plan to make acquisitions in 2017, with 48% of Canadian executives expecting to pursue an M&A transaction in the next year. Though the respondents do not believe that 2017 will be quite as prolific as 2015, 44% percent of Canadian respondents still expect the market for acquisitions to grow over the next 12 months, compared to only 14% at this time last year. This optimism comes despite a certain amount of economic and political uncertainty brought on by Brexit, the recent U.S. presidential election and the uncertainty regarding U.S. interest rates in the near term. In addition, 39% of Canadian respondents expect that the Canadian economy will improve over the next year, whereas only 10% agreed with this sentiment in April 2016.
Amongst Canadian respondents 83% indicated that they have more than one transaction in their M&A pipeline, which is in keeping with the global average of 81% of all respondents. Amongst all respondents, the following sectors appear to be the most likely for M&A activity in 2017: consumer products and retail (71% of respondents); diversified industrial products (60%); and life sciences (56%).
In addition to reporting on Canadian executives’ opinions on the domestic and global economy, the GCCB also provides some insight as to how executives and potential investors around the world view the Canadian marketplace for M&A transactions. According to the survey, Canada is now one of the top 5 destinations where global companies will be actively pursuing acquisitions in the upcoming year (ranking 4th , ahead of France and behind the U.S., China and Germany). This is the first time that Canada has ranked in the top 5 since 2013, when oil prices were at or near their peak.
According to Doug Jenkinson, partner within the Transaction Advisory Services group of Ernst & Young LLP (Canada), “Canadian respondents are still acting with discretion and taking a prudent view when evaluating acquisitions, with 85% of respondents indicating they had walked away from an acquisition in the past 12 months”. Among the reasons cited by the respondents for calling off a deal was a valuation gap that was too wide to bridge, as well as critical issues uncovered during the due diligence process.
Still according to Mr. Jenkinson, “Canadian respondents are looking at larger deals than in recent periods, with 64% looking at deals worth $250 million to $1 billion, compared to only 9% one year ago.” Though the results of the GCCB show that more than 75% of Canadian respondents are confident about the quality of available opportunities as well as the probability of closing such transactions, Canadian respondents have indicated they are highly selective when it comes to choosing what opportunities to pursue.
Looking forward to 2017, global and Canadian executives appear to see positive trends in the M&A marketplace, including the opportunity for significant transactions with the opportunity to transform their companies. Let’s hope the predictions come to fruition.
The author would like to thank Vincent Belley, Articling Student, for his assistance in preparing this legal update.
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