Deal volume has been less than it has been historically, but it’s widely predicted that the coming months will result in a significant uptick in deal flow.
Private M&A in Canada had another defining year in 2024, including increased regulatory scrutiny, significant activity in certain sectors and the rise of private capital. In the latest episode of our podcast, Blakes Partners Cheryl Satin and John-Paul (J-P) Bogden break down these trends and share their insights on what’s next for dealmakers.
Nathan:Hi, I’m Nathan Kanter, and welcome to another episode of the Blakes Sound Business podcast. Today, we’ll be delving into the dynamic world of private mergers and acquisitions, reflecting on the key trends from 2024 and looking ahead to 2025.
Joining us are Blakes Partners Cheryl Satin and J-P Bogden from our Private M&A team. Cheryl and J-P will talk to us about current private M&A activity, what’s driving deals, how geopolitical events like the recent U.S. election are shaping Canadian M&A and what’s next in an increasingly globalized market.
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Nathan: Cheryl, what can you tell us about the pace and volume of M&A activity over the past year?
Cheryl: There have been a number of significant deals that have been announced or closed in 2024, such as RBC’s acquisition of HSBC Canada, Bell’s sale of its ownership stake in MLSE to Rogers, Cleveland-Cliffs acquisition of Stelco and several others, but overall, deal volume has been less than it has been historically.
Overall, there’s just been a feeling of caution, be it uncertainty around the U.S. election, global stability, tighter credit markets or general market uncertainty relating to interest rates and inflation. In many cases, deals are also progressing more slowly for some of the same reasons I just noted but also, as compared to the periods during COVID and coming out of COVID, buyers have just been more cautious and thorough in their diligence efforts, and negotiations have been more protracted and challenging, particularly when it comes to valuations and other key deal terms.
Nathan: J-P, are there particular sectors that are more active than others? Where have you seen deals happening?
J-P: Yeah, we have seen outsized activity in certain sectors over the past year. Ones that come to mind are mining, technology, consumer and food and beverage, and financial services.
Looking at mining, we saw a number of large transactions, including Filo’s acquisition by Lundin and BHP, which was about a C$4.5-billion deal, along with G Mining’s acquisition of Reunion Gold.
Food and beverage and consumer had some smaller price points but some more interesting deals. So, more recently, we saw a sale of Sunco Foods, a British Columbia-based business, to Fulcrum Private Equity, and another really interesting deal in that industry was Maple Leaf Foods spinoff of its pork business into a new pubco [publicly traded company], which is obviously not something we see every year.
In tech, again, some smaller deals, but good volume. Nuqleous, a sponsor-backed software company, acquired SpringBoard, and Luminate acquired AbsenceSoft from NVP [Norwest Venture Partners].
Then, finally, in financial services, very busy sector with some large deals. Cheryl already mentioned the RBC and HSBC deal, and then, of course, we saw National Bank enter an agreement to acquire Canadian Western Bank.
Nathan: Cheryl, back to you again. Have you noticed any trends in the regulatory landscape, and how are they impacting M&A?
Cheryl: There’s been increased regulatory scrutiny across the board, be it with respect to foreign investment, competition, antitrust, prudential regulators or various industry-specific compliance related regulators. This has led to longer interim periods between signing and closing and delays in the closing timing, increased need for legal expertise that are familiar with and have good relations with the regulators, and more costly execution and integration costs. Experts generally believe that Trump’s win in the U.S. election will be good for business and M&A activity, as he will lessen regulatory controls and scrutiny over deals. However, it’s unclear that regulators in Canada will ease up in a similar fashion in the short term.
Nathan: J-P, how does private capital fit into the equation? Have you seen any notable trends?
J-P: Yeah, we have actually seen a really interesting trend in terms of the use of private capital versus traditional bank debt. So, formerly in leveraged buyouts and domestic leveraged buyouts, you would invariably see a traditional bank providing acquisition financing. Over the past five years or so, and starting in the U.S., we’ve seen a pronounced shift towards the use of private debt funds, so that’s a really notable shift. We, in Canada, have seen some examples, too, of industry-specific private debt funds, but they’re not in as widespread use as in the U.S. So, one of the trends that we’re particularly interested in and following is whether we will see domestic funds follow suit and form less specialized and more generalized buyout funds that will fuel private equity activity here in Canada.
Nathan: What about representation and warranty insurance? How has the market evolved in that area?
J-P: Yeah, good question. You know, I’ve been practising for a while, and remember when RWI was a distinguishing feature in bids. Those days are long gone. What’s most interesting now is seeing how representation and warranty insurance is being utilized not just by the private sponsor community but also in transactions between strategics. The other notable trend line that’s developed is the stabilization and maturation of the rep and warranty industry. There are lots of providers, there are lots of brokers, and we now have norms in RWI deals that we didn’t have, say, five years ago, so we get better access to better products as dealmakers. The other offshoot of the widespread use of RWI is seeing increased insurance claims, so we now have a better sense of which providers are more service-oriented and which providers are drawing a harder line in the sand in terms of claims. So, getting the data on all the claims over the years has been really revealing and helpful for our clients.
Nathan: It’s time now for a 2025 forecast. Cheryl, let’s start with you. What’s on the horizon for private M&A deal activity?
Cheryl: It’s widely predicted that the coming months will result in a significant uptick in deal flow. There’s been a lot of pent-up demand and supply, and there’s lots of funds available to spend, particularly in the private equity space where there’s been a lot of dry powder not spent and that time horizons on private-equity’s current investments have been going along such that there is coming up to time for exit. Recent surveys of the market also support a significant uptick. For instance, a recent survey conducted by KPMG indicated that nine in 10 CEOs of large Canadian organizations are considering making acquisitions in the next three years to help boost growth, with 41% of CEOs planning for large transactions that will significantly impact their operations. Only 9% of survey respondents indicated that they were unlikely to make any acquisitions in the next few years.
Nathan: J-P, you get the final question. How do you think the recent U.S. election will impact Canadian private M&A activity?
J-P: This is a difficult question to answer, but in general, a pro-business U.S. government should, in theory, be good for Canadian M&A activity. As Cheryl already mentioned, there is expected to be a lessening of regulatory scrutiny on large deals and, as well, that government’s announced drive to lower taxes on business should, in theory, pave the way for many more deals.
On the flipside, a U.S. government that implements additional trade tariffs will make it harder to transact in those affected industries. And it’s worth pointing out that many of those industries are big components of the Canadian economy.
With that, the other flipside is that a Canadian dollar may well decline in value given its close correlation with resource prices, meaning that, in general, Canadian target businesses should become more of a bargain relative to their U.S. peers.
Finally, most agree that interest rates will continue to decline under the newly elected U.S. government and that Canadian rates should follow suit. This should make acquisition financing more affordable and, coupled with the ample dry powder that Cheryl already mentioned that’s available to the sponsor community, should make for a buoyant dealmaking environment.
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Nathan: Cheryl and J-P, thank you for sharing your insights with us today.
Listeners, for more information on this topic and our podcast, please visit blakes.com.
Until next time, take care.
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