Canada stands out amongst mature economies in anticipated merger and acquisitions (M&A) activity over the next three years according to research from the latest Grant Thornton International Business Report. The results from the 2012 report show that 42% of Canadian businesses surveyed said they plan to grow through acquisition.
These numbers are consistent with historically high figures over the past five years in Canada. However, around the world, the IBR results show that business appetite for M&A has markedly increased over the past 24 months, despite on-going global economic challenges. The survey reveals that the overall proportion of businesses seeking to grow through M&A has risen significantly from 26% in 2010 to 34% in 2012.
“Naturally, domestic M&A remains high on the agendas of business leaders, but the upswing in interest in overseas expansion is encouraging and no doubt reflects the particular market conditions within individual regions globally,” says UK-based Mike Hughes, global service line leader for Grant Thornton International’s M&A practice.
Canadian companies pursuing M&A growth strategies say they are doing so primarily to access new geographic markets (69%), but also to build scale (48%), access lower cost operations (39%) and acquire new technology or an established brand (34%). These kinds of key drivers are consistent around the world, indicating that Canadian companies believe M&A remains the simplest and most effective way for businesses to grow their footprint and build scale in new geographies.
Of those Canadian companies looking to grow through M&A, IBR survey results reveal 70% are looking domestically, while 23% are looking outside Canada’s borders. This stands in contrast to the global results, which show an overall increase in the number of companies seeking to expand through a cross-border transaction – from 28% last year to 33% in the 2012 survey.
“Acquisitions are well-established tools of corporate strategy in Canada, so it’s not surprising that we are comfortably above the global average in planning to use this as a tool for growth. Canadian merger and acquisitions activity is being driven by growth-hungry companies in a tepid economic environment, the ageing population of the Western world and strong access to funding,” says Troy MacDonald, Corporate Finance partner in Grant Thornton LLP’s Toronto office.
Most Canadian companies plan to finance their growth through retained earnings (68%), bank finance (55%) and private equity (31%). “Despite the global slowdown, many companies are holding significant cash and have excess debt capacity on their balance sheets, positioning them well to make acquisitions,” adds Greg Wright, Director of Mergers and Acquisitions at Grant Thornton Corporate Finance Inc. in Vancouver. “We believe the time is right for Canadian businesses to take full advantage of business optimism and the M&A opportunities that exist across Canada and well beyond our borders.”
Despite the appetite for M&A, only 12% of Canadian companies foresee a change in their own ownership over the next three years, and of these, 31% said they expect an acquisition by a competitor. According to Greg Wright, many of these businesses may command a premium price. “High quality businesses are attracting premium prices across the globe, and particularly in Canada. Slow economic growth over the last few years has definitely increased competition for attractive assets.”
The IBR survey results reveal some interesting regional variations. The regions most interested in making an acquisition in the next three years are North America (37%) and the BRIC economies (35%). This compares to only 28% in mainland Europe, 25% in Asia Pacific and in particular companies in the troubled economies of Greece, Ireland and Spain where only 16% indicated an interest in M&A activity in the coming three years.
Source: Grant Thornton LLP