Mergers and acquisitions and emerging markets top of mind with private companies this year: PwC
TORONTO, Oct. 12, 2011 — According to a survey of Canadian private companies, almost half (47%) of the respondents who plan to grow their business in the next 12 months, plan to do so through mergers (11%) or acquisitions (36%), showing an upward trend from last year.
“A rising in interest in M&A may be indicative of the need to rely on non organic strategies to achieve growth targets” says Kristian Knibutat, Canadian deals leader, PwC. “Despite the recent uncertainty in the market, we expect that current levels of M&A activity will continue at a steady pace. Canadian private companies have been stockpiling cash, bolstering their balance sheets and are well-positioned for opportunistic buys,” he adds.
The confidence level of Canadian private companies is the highest it has been since 2005. Last year’s survey by PwC showed that 66% of respondents were striving for growth compared to 82% in September 2011. The study shows that among respondents who are planning to grow, almost two-thirds of the companies surveyed (62%) indicated that they plan to achieve growth by improving sales and marketing, gaining market share (58%) and/or expanding operations (51%).
“In an environment characterized by slow organic growth and intense competition, M&A may be required to survive and thrive” says Knibutat.
Of those planning to grow, 52% have no plans to access additional financing to fund their growth. “Most successful companies want to pay down their debt,” says Holly Allen, former Canadian debt advisory leader, PwC. She says they “tend to rely on their existing balance sheet rather than borrowing. When they do borrow, it’s typically for very specific objectives. It’s not that debt is expensive these days. It’s just they don’t want the overall quantity of debt to be too large.”
The survey also polled Canadian private companies to get their views on foreign direct investment (FDI). Surprisingly, the survey showed that 49% of respondents view FDI into Canada from emerging economies as an opportunity rather than a threat. Of those respondents who view foreign direct investment into Canada as an opportunity, 56% cited it as a way to establish direct ties with high-growth emerging markets.
About six-in-ten businesses surveyed are currently doing business or considering doing business with North America, 40% are currently doing business or considering doing business with Asia and 21% are looking into South America as an area of interest. Says Knibutat, “companies want to be positioning themselves for the future, both in terms of diversification, but also where markets are starting to grow.”
The most popular source of entry into foreign markets has been exporting (22%), while 16% of respondents use sales representatives, 15% are setting up operations, 14% are entering into joint ventures with local companies and 10% are exploring opportunities for acquisition of businesses.
“Overall, Canadian companies are lagging other developed countries when it comes to investing in emerging markets and that suggests long-term Canadian companies may miss out on opportunities to position themselves the best way they can for the future,” says Knibutat.
About the Business Insights Survey of Canadian Private Companies
The seventh annual Business Insights Survey examines issues affecting Canadian private companies. In the summer of 2011, over 300 leaders of Canadian private companies completed the survey from a broad range of industries. In September 2011, PwC commissioned a supplemental survey of respondents.135 of the original 306 participated. The sample is concentrated around four provinces — British Columbia, Alberta, Ontario and Quebec.
Please visit www.pwc.com/ca/businessinsights for more information on the Business Insights 2010 survey, including:
- A copy of the full 31-page Business Insights report
- Regional “On-the-Ground Observations” reports for British Columbia, Alberta, Ontario and Quebec
- In-depth interviews with the leaders of select private companies — Barry Brad of PROJEX, Bruce Levitt of Levitt-Safety Limited, and David Labistour of Mountain Equipment Co-op.
About PwC’s Private Company Services (PCS)
More than 65% of PwC Canada's clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC's Private Company Services (PCS) group is a dedicated team of business advisors who help private company owners resolve day-to-day business issues and achieve long-term success. PCS offers the perspective of a third party with professional industry knowledge, business consulting, tax and accounting expertise. For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private
About PwC
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