Mid-market M&A will remain resilient in 2023: KPMG

Middle-market merger and acquisition activity will remain resilient in 2023, even as the market for mega deals and initial public offerings continues to weaken, according to KPMG Corporate Finance specialists.

Khwanchai Phanthong

A growing number of retiring business owners looking to sell their businesses, combined with strategic and private equity buyers looking to deploy record amounts of capital, will keep the mid-market relatively buoyant, said Neil Blair, President of KPMG Corporate Finance,.

“IPO activity and mega merger deal volume saw a significant decline last year because of unfavorable market conditions and pressure on valuations, and that trend is expected to continue this year, with a bounce back in late 2023. While the mid-market faces economic headwinds as well, it will be less affected than the mega deals market thanks to its underlying fundamentals. Even so, valuations are under pressure, so well-executed succession and transition plans will be increasingly critical for buyers and sellers in the mid-market.

“Small and medium-sized businesses contribute significantly to the job market and drive more than half of Canada’s GDP growth. For business owners who are thinking of monetizing their businesses as a pathway to retirement over the next few years, preserving their value is important not just for themselves or the business, but for the economy at large.”

KPMG said the Canadian mid-market – defined as transactions with enterprise values ranging from US$10M to $500M – saw 2,618 deals last year, according to Refinitiv.

“While individually these transactions do not typically move public markets, collectively they are significant contributor to the Canadian economy, with small and medium-sized businesses employing 13.7 million Canadians and accounting for 85 per cent of the private sector labour force, according to 2021 data from Statistics Canada. An increasing number of mid-market company founders are nearing retirement age as well, with nearly half (47 per cent) of the primary decision makers between the ages of 50 to 64 and 12 per cent older than 64, according to StatCan.”

Over $2 trillion in business assets could change hands within the next decade as over three-quarters (76 per cent) of small business owners are planning to exit their business, according to a recent report by the Canadian Federation of Independent Business.

The national organization said that retirement is the top reason business owners cited for leaving their business (75 per cent), while 22 per cent are burned out and 21 per cent want to step back from their responsibilities as owners. However, only one in 10 business owners (nine per cent) have a formal business succession plan in place.

“With the looming threat of an economic downturn and increasing headwinds impacting organic growth, management teams continue to look to acquisitions as a key growth driver for their companies. That makes it more critical than ever for buyers [and sellers] to do proper due diligence to extract the most value from a merger or acquisition,” said John Cho, National Leader of Deal Advisory at KPMG in Canada.

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)