Financial services among drivers of growing Canadian M&A

PwC midyear report highlights resilient deal strategies, despite challenges

Financial services among drivers of growing Canadian M&A
Steve Randall

The landscape for mergers and acquisitions involving Canadian businesses remains resilient despite ongoing challenging market conditions, with financial services among the bright spots.

A new report from PwC Canada provides a midyear update to its 2024 Canadian M&A Outlook that was published in December 2023 and suggested ways to navigate the choppy waters to drive deals forward.

Private equity firms are sitting on a record $26 billion in dry powder that is more than four years old, and as conditions become more favourable for firms to deploy that capital, Canada deals should escalate based on PwC’s internal analysis.

The new stats show that there were 952 deals in Canada with a total value of $72 billion in the first five months of 2024 according to Capital IQ data and PwC Canada analysis. Taking only the first three months, there were 592 deals, in line with the previous quarter’s 582.

The firm expects the data for quarter two to be similar which would mean four consecutive quarters of stable deal volume, but the firm expects things to begin accelerating.

With interest rates in Canada likely to diverge further from the Fed’s rates south of the border, the attractiveness of Canadian businesses is enhanced. The analysis also shows a narrowing of the valuation expectation gap between buyers and sellers.

Inflation is also expected to ease in Canada to 2% by the end of 2024 while the economy is estimated to grow by more than 1% in GDP terms, but with a different pace of the US economy, the Canadian dollar is expected to remain under pressure and hover around the 70 cents (US) mark.

International investors are increasingly interested in Canadian opportunities and there has been a steady increase in inbound deals over the last couple of years.

Financial services deals

Earlier this month, National Bank of Canada and Canadian Western Bank announced plans for a tie-up to add scale nationwide, and further deals in the financial services sector are likely to come.

PwC Canada’s midyear update highlights inflation-resilient opportunities across core financial services subsectors, like insurance, asset and wealth management, and banking and capital markets.

There is increased corporate-driven M&A activity across these subsectors in response to regulatory and technological changes which make scale a key factor in mitigating narrowing margins.

The report also notes “an increase in owner/operator exits among relatively large founder-managed businesses” in wealth management and insurance distribution. As these businesses become available, acquirers may be attracted to those firms where there is potential for to expand revenue, diversification, and cost synergies.

As well as financial services, Canada’s renewable energy industry is in line for investment from both domestic and international investors, as long as premium returns can be offered in what has historically been safe but low-return investments.