Private equity

Mid-year Canadian M&A industry and market trends

Deals activity continues to be robust, with very competitive deal processes. Markets are hot, multiples are relatively high, interest rates are still low and there’s a lot of dry powder to deploy. In this environment, value creation planning and commercial due diligence continue to be mission-critical—the more a private equity (PE) fund undertakes in advance of buying a company, the more competitive they can be with their bidding and the more successful in current fund vintages.

Here are some of the key M&A trends we’re seeing in PE:

Funds are focused on environmental, social and governance (ESG) factors—not only in terms of buy-side due diligence, such as climate strategies and net-zero targets to evaluate investments, but also from a sell-side perspective in response to the number of potential buyers prioritizing ESG. According to our Global PE Responsible Investment Survey 2021, 72% of PE funds always screen target companies for ESG risks and opportunities at the pre-acquisition stage, while 56% have refused to enter general partnership agreements or turned down investments because of ESG considerations. Funds are also now looking to move beyond evaluating and measuring ESG risks to leveraging ESG as a value creation lever.
Cybersecurity is becoming a critical issue for funds, given the rise of ransomware attacks, reported breaches and high-profile incidents. In particular, we’re seeing cyberattackers targeting companies that have sales or initial public offerings (IPOs) pending. This growing threat is driving PE funds to assess the cyberattack readiness of their portfolio companies, with some working to help companies understand how to better evaluate cyber risks and get ahead of potential issues.
Discussions within PE funds about the digital transformation of their portfolio companies are continuing to accelerate because of COVID-19. As we move to a new business normal, funds are now considering what digital trends will persist, for example, online shopping and video conferencing, and building strategies to meet these expectations.
In the buyout space, funds are focusing on bolt-on acquisitions for their existing portfolio companies—particularly bolt-ons that are technology focused. PE funds are also looking beyond buyouts to growth capital and other alternative deployments of capital.
We’re also seeing more funds focusing on upskilling their talent, especially around data and analytics. This could drive discussions about the future capabilities expected of PE analysts—and how to better enable them to leverage data and analytics to uncover new insights and deliver value faster.
As we look to the remainder of 2021, PE funds are considering what the return to work will look like and how they’ll manage the transition effectively. Many Canadian PE funds are eager to get back to in-person meetings with potential targets and the management teams of their portfolio companies.