Canadian tech sector bucking general M&A trend

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Published: 01st November 2012
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There’s no doubt the overall trend for M&A deals is a downward one, however, the tech industry is bucking this trend and nowhere is this more true than in Canada.

Although M&A in general has been down, the Ernst & Young Global M&A report for the first quarter of 2012 found that M&A values had fallen by 12 per cent year-on-year, while volumes were slightly up. The value of the deals totalled $25 billion. Although this could be seen as “mixed” at best, it is considerably better than the figures for M&A in general, showing that the tech sector is still open to dealmaking even in these volatile economic times.

This is for several reasons, according to analysts. They claim that the fast-moving nature of the tech industry has a large part to play in the continued desire to expand through acquisition in the sector. In addition, there are a series of so-called 'mega-trends' that a growing number of the firms want a slice of. As a result, deal numbers involving technologies like online video, social networking, Software-as-a-Service (SaaS) and smart mobility were highest.

The most popular were online video and SaaS businesses, and deals involving these technologies generated the largest values cumulatively. With regard to deal volumes, there were more deals involving social networking, big data analytics, marketing technologies and patents, according to Ernst & Young.

As well as the tech industry being upbeat when it comes to M&A deals, Canada is particularly healthy, it seems, with indications that there is a general rise in confidence among businesses and consumers. The gap between the business valuations made by buyers and sellers, which is extremely wide and growing elsewhere, is also shrinking in Canada – making the market ideal for M&A. However, the way in which people are embarking upon and carrying out their mergers and acquisitions has changed.

Tony Iiani, the president of Ernst & Young Orenda Corporate Finance, told Canadian Lawyer Magazine that sellers are becoming more cautious, which is resulting in more preemptive approaches. He stated, “Sellers recognize they want to maximize value but minimize closing risk. ”

“The worst thing you can do is go out in the marketplace and then have a failed deal, because that will translate into reduced valuation down the road.”

As well as taking a more cautious approach to dealmaking, it seems buyers are starting to look, once more, towards the domestic market for acquisitions. For some time now, the trend has been very much for businesses to be seeking out expansion overseas, in to merging markets. However, the risks that come with this approach could be beginning to outweigh the benefits for some smaller businesses. Statistics from PricewaterhouseCoopers has found that more than half of the deals involving a Canadian buyer in the first half of this year were targeting Canadian businesses. Of the remainder, 35 per cent were targeting firms in the US, with the rest made up largely of companies in Europe, Asia and Australasia.

At the same time, location has become less of an issue when domestic deals are done, in terms of where offices and workers are based. PwC’s VP Craig Hanna commented that where workforces are based is of less concern these days thanks to the number of collaborative tools now available.

Whether deals are taking place across borders or not, carrying out a thorough due diligence process is essential. using a remotely-accessed data room can help all parties involved access the information they need to make the right M&A decision, regardless of location.
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