The number of transactions declined, but the chatter is not.
In COVID-19 pandemic and associated economic crisis significantly reduced the number of mergers and acquisitions, especially in the canadian startup space. But some investors and experts, speaking at the financial post to say, pent-up demand and economic turmoil may lead to wave activity in the near future.
“There is no doubt that the market of mergers and acquisitions is heating up,” said Rick Nathan, senior managing partner of Kensington capital, a Toronto investment firm, which holds a mix of venture investments and private capital. Kensington supported canadian IT companies like D-wave, TouchBistro and Pandora.
“Of course, I can’t do anything specific, but I can tell you that some of our portfolio companies actively look at the different types of mergers and acquisitions, which could be fillers, buying something, or it could be that they think of themselves in the game to sell the company.”
Nathan said the three companies in the portfolio of the Kensington has been involved in M&A activity over the last six weeks.
Every economic downturn considering corporate consolidation, but the changes in society made by COVID-19 introduce another element in the business environment.
“Unlike other crises, this time more selective where you have categories of winners and losers is affected differently,” said Nathan.
“If your business is growing in this environment, you will be more likely to be more aggressive.”
Several industry leaders who spoke at the Financial Post stated that low interest rates after the financial crisis of 2008 led to an extended bull in M&A and market correction.
In addition, in various parts of the economy, companies are struggling with severely reduced incomes may be forced to put itself up for sale.
Especially among innovative startups, the business plan often includes venture capital investments promote active growth, but venture capital investment has also been overheated in recent years.
Hans Knapp, Vice-President of the Canadian Association of venture capital and private investment, and partner in Vancouver, Vancouver partners, said that many of those companies, which face much more scrutiny, and he expects that will be a reality in the long term.
There were many head-scratcher tours that took place in Canada and the United States in the last three to five years
Hans Knapp, Vice-chair, venture capital and private equity Association
“When there is a lot of money around, even lousy ideas will receive funding,” said Knapp.
There were many head-scratcher tours that took place in Canada and the United States in the last three to five years — a lot of questionable business models and abundant venture capital. But in the end many of them were based eventually on getting to the level that would be economic, but now COVID-19 scored a landslide is very large in this way.”
Ian mant, partner, specializing in mergers and acquisitions law firm LLP Fasken, said he saw the difficult economic situation to throw a wrench into trades.
Said manta in one case in particular, the company was forced to sell under difficult circumstances.
“They need to raise a lot of money, and could not, so they end up doing an m & a transaction, and it was a real struggle to get the scores they wanted. COVID hit, and the buyer is gone,” he said.
“They had to work hard to get the deal back on the table, and in the end, did it actually significantly reduced score but it was the best they could do in a market where they could not raise the money.”
The OP data shows there were 62 m&A transactions in Canada and software space is estimated at $2.1 billion, which is 27 July, with the beginning of the year, compared with 96 deals worth $3.1 billion over the same period last year — about 32 per cent in dollar terms.
M&A transactions in the sector of it services has also fallen to 20 deals worth $ 1.4 billion, compared to 42 deals worth a similar period last year to 2.2 billion dollars, a 37 percent cost reduction.
This level of uncertainty is not what I experienced in the recessions throughout my career
Ian mant, LLP Fasken
Pandemic, and a General feeling in society change is leading to great difficulty getting deals done.
“This level of uncertainty is not what I experienced in the recessions throughout my career. I just think it complicates things a little more,” said Mantes.
“On the side to sell, it takes some time to adjust down to the new reality and, you know, they don’t want to overpay.”
At the same time, several people who spoke to the financial post said that the amount of unspent capital sitting on the sidelines is likely to encourage the activities.
“Yes, there is a break in the overall mergers and acquisitions this year. That being said, in the last few months there has been an increase in activity,” said John Cho, partner of consulting company KPMG, Director of Internet consultation for Canada.
“There is a lot of capital still looking to be deployed. There are 2 trillion dollars of institutional money, it means private capital, pension plans, sovereign wealth funds — about $ 2 trillion of dry powder looking to be deployed”.
Said, what he didn’t expect M&A activity is fully restored, yet there is no certainty about the pandemic, and economic future. However, there may be a lot of “random purchase” in the coming months, particularly in sectors severely affected by the pandemic, such as retail, travel, entertainment and restaurants.
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