Turning uncertainty into opportunity: Private equity in a shifting trade landscape

Why now might be the right time for M&A in Canada

• Valuations are becoming more attractive: Economic uncertainty often leads to lower valuations, creating a buyer’s market.
• A weaker Canadian dollar: This makes Canadian companies more appealing to foreign buyers, particularly those with US dollars to spend.
• Sellers may be more open to divestment: Companies might look to offload non-core assets or those most exposed to US tariffs.

Lessons from the past: M&A during downturns

Bain & Company’s Global M&A Report 2023³ offers some compelling insights from the 2007–2009 financial crisis which may be worth remembering:

• Companies that stayed active in M&A during tough times outperformed those that did not. Active acquirers saw an average annual total shareholder return (TSR) of 5.9 percent, compared to 4.7 percent for those who sat on the sidelines.
• Firms that were already active before the downturn and kept going did even better, with a 6.1 percent TSR.
• Even companies that had been inactive but started acquiring during the downturn saw improved returns (5.5 percent vs. 5.0 percent).

What private equity should be doing now

Here’s how private equity firms can make the most of the current environment:

1. Pursue M&A opportunities: Firms with a track record of acquisitions and available capital (“dry powder”) should stay active. Private equity has historically outperformed public markets, partly due to its hands-on approach to managing portfolio companies.
2. Engage financial advisors: For sellers, even if valuations are lower, the exchange rate advantage can be significant. Working with financial advisors can help businesses understand their true value and find the right buyers.
3. Be ready for creative deal structures: Expect to see more earn-outs, deferred payments, and roll-over equity. Asset sales may also become more common as buyers look to manage risk.
4. Prepare for deeper due diligence: Buyers will be more cautious, demanding greater financial and operational transparency to protect their returns.
5. Anticipate regulatory risk clauses: Expect acquisition agreements to include more clauses around regulatory risk, such as “material adverse change” provisions and buyer-friendly termination rights.
6. Plan for longer deal timelines: Deals may take longer to close as buyers weigh the risks and rewards more carefully.

Final thoughts

Even in uncertain times, there are always opportunities. For private equity firms and businesses alike, the key is to stay informed, stay flexible and be ready to act. We’re here to help you navigate this evolving landscape and make the most of what’s ahead.