Canadian firms targeting growth through mergers
With business leaders optimistic about a return to profitability, Canadian companies are looking to drive growth through mergers and acquisitions, according to EY’s “Global Capital Confidence Barometer” report.
The pandemic made many Canadian business shift to a protective stance to stem the damage. EY’s report, which was released in May 2021, found that more than 90% of surveyed Canadian businesses experienced significant declines in revenue and profitability during the pandemic.
Canadian executives are optimistic about recovery, however, with 77% expecting revenues to return to pre-pandemic levels this year, and 87% expecting profitability to return by 2022.
The pandemic forced companies to accelerate their digital transformation, and the area will remain a popular area for investment. More than 78% of Canadian respondents said they outperformed during the pandemic with respect to digital transformation, and the area was identified as the top strategic priority after “growth through acquisition.”
Firms will look to build on previous initiatives, such as shifts to remote work and improved ecommerce capabilities. Sixty-eight percent of Canadian executives said they plan to increase strategic focus and investment on digital transformation, with emphasis on building a more flexible operating model and cost base.
“Investments in digital may have been a reactive trigger to the pandemic, but moving forward, executives are looking to drive opportunistic investments to create more flexible operating models and greater cost efficiencies," said Doug Jenkinson, partner, strategy and transactions at EY Canada.
According to the report, rebounding revenue optimism and low interest rates are inciting companies to target growth via M&A. Indeed, 53% of Canadian firms plan to pursue M&A in the next 12 months – with 40% targeting bolt-ons to increase market share, and 27% eyeing transformative deals that alter business models or enter new geographies.
The report found 79% of Canadian businesses failed to complete or cancelled a planned acquisition in the last 12 months. According to EY, this suggests firms are nonetheless being careful in their M&A decision-making.
"A wait-and-see attitude may have proven prudent in the short term, but could hamper growth in the longer term if companies choose to sit on the sideline,” said Jenkinson. “Companies that actively pursue M&A to accelerate growth will increase their chances of outperforming their competitors as we look towards economic recovery.”
