Although 2022 was not as busy in terms of deal flow versus the record-breaking year prior, 2022 deal activity remained higher than 2020. Even with general market uncertainty stemming from high inflation rates, global conflicts, volatility in the foreign exchange markets, and supply-chain issues stemmed from lingering COVID-19-related issues in Asia, the Canadian M&A market showed resilience despite the general market uncertainty.
Large corporation and private equity firms continue to have copious cash reserves in precaution of economic downturn. With interest rates rising to combat high levels of inflation, valuation multiples will continue to face downward pressure. We expect to see less aggressive leveraged buyout structures in the upcoming year due to the rising cost of borrowing. These challenges will likely increase the number of distressed sales in the upcoming year–which will give savvy investors the opportunity to acquire high-quality assets at a lower price. Market volatility has also pushed businesses to re-focus on their core competencies while steering away from growth projects. From an investor standpoint, buyers will continue to magnify the importance of a thorough due diligence process prior to a deal closing, emphasizing financial diligence because of fluctuations in the commodity market and product price increases.
Despite the challenges outlined in our full report, M&A activity for 2023 is expected to remain constant, largely due to liquidity in the market, lifting inflationary pressures and opportunistic investors.