Canadian Underwriter

Canada’s future M&A battleground: tech acquisitions

February 27, 2018   by Jason Contant

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Natural resource industries still drive most Canadian mergers and acquisitions, but the financial services, technology and consumer industries are also expected to see a lot of M&A activity as the economy evolves, according to a new report. And one important battleground will be tech acquisitions.

Produced by global bank Citi in conjunction with Mergermarket, the study, Reaching New Heights: The outlook for Canadian M&A in 2018, polled 50 senior Canadian M&A dealmakers in the second half of 2017 to gain insight on their predictions for Canadian dealmaking in 2018. Overall, about three-quarters of the M&A practitioners believed that Canadian M&A activity would increase in 2018, both in volume (78%) and value (74%).

For Canadian M&A activity generally, “a growing economy, strong consumer spending, cash-rich corporate balance sheets and firming oil prices will help to push domestic activity,” Citi and Mergermarket said in a press release on Tuesday. “Meanwhile, Canada’s recent focus to cut down on its dependence on fossil fuel and provide technology funding is predicted to drive tech-based acquisitions for inbound and outbound activity in 2018.”

Tech looms large in the minds of Canadian dealmakers, especially when it comes to cross-border activity. Respondents said they expect Canadian firms to seek out foreign tech acquisitions — and for buyers from abroad to purchase Canadian tech as well.

In one of the largest-ever funding rounds for an artificial intelligence-focused firm, Montreal-based Element AI raised US$102 million in 2017, the report said. The company is a platform and incubator for companies incorporating AI into their business models.

Respondents were asked which of the following categories will see the biggest increases in M&A activity in 2018 (respondents picked their Top 2 choices):

  • 20 said outbound financial services (a domestic company merging with or acquiring a foreign company)
  • 10 said domestic deals
  • five said inbound financial services (a foreign company merges with or acquires a domestic company)

Another question asked “which sectors do you expect U.S. buyers to target most in Canada over the next 12 months? (select top two).” Energy topped the list of 40 respondents, while financial services came in at about 13.