Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/1518995
8 www.lexpert.ca Feature this year, Atkinson notes potential buyers and sellers are reassessing whether we will get those interest rate cuts sooner than later. "I think there are a lot of people waiting for rate cuts to happen because once those costs come down, lending costs come down, and that can have a cascading effect," he says. "And I think then you may see a lot of buyers start to dive in, particularly among financial buyers, because they're the ones that rely on leverage to do their deals," benefiting from lower interest costs. Atkinson says there is still some hesitancy on the buyers' part for jumping in too soon. "You don't want to be the one that cuts a deal before the interest rates get cut. at's the uncertainty right now." He describes "two camps" of sellers – companies with "heads still in the pandemic valuation" space and others that may be financially distressed "or getting there." As for buyers, private equity may be sitting on a lot of cash but are looking for financial return, and "there's only so much they are willing to pay without blowing their financial models." Despite having this "dry powder," Atkinson says private equity deals still rely on a fair bit of debt to finance a transaction. On the other hand, strategic buyers may buy for different reasons, such as synergies. Strategics are also willing to use company shares as "currency" for the transaction. He says that such currency, like exchangeable shares, is becoming popular in private equity deals and is one way for founders to keep skin in the game. Tim McCormick, Toronto-based partner with the national corporate and capital markets practice at Borden Ladner Gervais LLP, says that while interest rates are higher than historic lows, companies can now better model a deal structure. "ere is just more conviction in the market that rates are going to be flat to lower," McCormick says, "which is helpful for deter- mining the valuations that deals will be done at." He's already noticed that debt markets are less tight than they were this time last year, "and this bodes well for M&A activity." While small-and-mid-cap deals ($100 million to $200 million) will likely do well, McCormick sees few mega-deals (like the Rogers-Shaw deal) getting done under current conditions. He considers the stricter competition laws and other regulations that have come into play, making it harder to get such big-ticket deals done, with buyers facing increasing regulatory burden and risk when going into such transactions without clearly knowing where they stand. Still, there is geopolitical uncertainty – and not just because of Russia's invasion of Ukraine and the war resulting from the Hamas attack on Israel. is year will be a record year for the number of people eligible to vote in nationwide elections – four billion, or half of the world's popula- tion. (e Economist counts 76 countries where the eligible population can vote, including the United States, India, Russia, and the European Union.) McCormick says the potential for any of these elections to destabilize is real, including perhaps the most critical foreign election for Canada – the US presidential election. Given that the US is Canada's largest trading partner, McCormick says, "We do run into some political uncertainty as we get closer to November." SOURCES: S&P Global Market Intelligence as of January 15, 2024 Implied enterprise value (CA$ millions) 150,000 100,000 Implied EV 50,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 CANADIAN M&A TRANSACTIONS Number of transactions 2,500 2,000 1,500 1,000 500 Number of transactions "In a general sense, buyers in various sectors are starting to leverage AI in their internal processes to source targets, evaluate them, and then conduct due diligence" BRIGITTE LEBLANC-LAPOINTE NORTON ROSE FULBRIGHT CANADA LLP