As British Columbia moves toward economic recovery, 2021 is shaping up to be a busy year for mergers and acquisitions (M&A). Prior to the COVID-19 pandemic, 2019 was one of PwC Canada’s busiest years for M&A activity. When COVID-19 hit, many companies initially held off on new deal activities amid the uncertainty.
But with M&A activity rebounding strongly at the end of 2020, the total number of deals in B.C. was down just 4 per cent over 2019. Momentum hasn’t slowed since the New Year, contributing to a hot market in many sectors. PwC expects continued strong activity throughout 2021, particularly in key B.C. industries, such as materials and resources (including mining and utilities) and information technology, that have performed well during the pandemic. PwC has seen particularly high valuations for businesses that have shown stability and resilience to COVID-19, many higher than pre-pandemic levels.
One industry that has been especially strong is health technology. Companies focused on medical devices, vaccines, therapies and diagnostics related to pandemic response and future preparedness are likely to remain attractive targets. Recent deals include Cytiva’s acquisition of Burnaby-based Vanrx Pharmasystems, which makes robotic machines to fill vials, syringes and cartridges.
British Columbia’s robust M&A market is creating fierce competition for some companies, according to Calle Johnson, a B.C.-based deals partner at PwC. “Valuations have been strong and the market is active, if you were considering a transaction, now is the time,” she says. “In those industries that have performed well during the pandemic, valuations have been strong, driven by buyers with significant funds to be deployed, so it is a seller’s market right now and the timing is good for a transaction,” she says.
As PwC noted in its 2021 Canadian M&A outlook, there’s significant demand for buying opportunities from private equity firms, which have money (dry powder) to spend as low interest rates encourage investors to invest even more with them. With these firms looking for additional opportunities to deploy capital, a potentially once-in-a-lifetime succession opportunity is emerging for many private companies and family-owned businesses.
But the outlook does vary by sector. “There are pockets where deal volume and valuations are down,” says Philip Heywood, a partner and B.C. deals leader at PwC. “This may present some compelling buying opportunities,” says Heywood.
“Manufacturing is one area, as are parts of the consumer market. Anything with strong e-commerce or technology is very active. Traditional bricks and mortar is depressed. Tourism and travel is still down. However, we’re seeing an uptick in interest in those industries and see good value opportunities for pre-emptive investment prior to a stronger rebound.”
But even with a strong M&A market in British Columbia, buyer expectations are high and investors are seeking to de-risk transaction processes through very thorough financial and non-financial due diligence, and often earnouts are used to address any perceived risks or resulting valuation gaps.
This means that for companies looking to put their best foot forward to maximize value, it’s important to perform due diligence on themselves before going to market by carefully examining their finances, operations, market position, technology capabilities and expected forecast.
“You’ll need to figure out the skeletons in your closet as an owner and how to address them,” Johnson says. “There are relatively easy things you can do before going to market that can impact the cash in your pocket at the end of the day.”
This is one area where data analytics can help. “Using data-driven insights to take a critical look at your business can help differentiate your company in a crowded marketplace,” Heywood says, noting that by analyzing internal and external data sources, companies can identify opportunities to increase efficiency and uncover new levers for growth.
This data analysis can also help companies tell their story in a more compelling way. “You want to make sure the company is getting value and credit for what it has done,” Heywood says, adding that the right message, paired with evidence that supports the value drivers of the business, can go a long way in helping B.C. companies maximize value.
Another way to maximize value is to focus on realigning business units, boosting core competencies and, ultimately, setting the businesses up for success during the recovery. While these are common levers for companies to explore, it’s also important to examine all angles for creating value. Remember, for example, that the value of a company doesn’t just come in the form of the business asset. Through mergers and acquisitions, buyers can also access the skills, resources and technology they’ll need to succeed in the future.
Even for owners who aren’t considering selling just yet, now is the time to look at the business through an investor’s lens so they can take steps today to secure their future. “Start preparing for this earlier rather than later so you can think about some of the insights you’ll need to consider,” Johnson says. “You don’t have to make substantial changes, but you can make some small tweaks that will make a big difference in the future.”
To meet PwC Canada’s deals team and learn more, visit www.pwc.com/ca/en/services/deals.