As the fallout from COVID-19 continues to impact just about all industries and sectors of the economy, the advent of the vaccine is giving hope for positive business outcomes for the year ahead.
2020 was a rollercoaster year for mergers and acquisition activity in Canada. As the pandemic took hold in North America last March, deals between businesses of all sizes initially experienced a substantial drop in activity before rebounding later in the year, with the outlook for 2021 now being quite promising.
We sat down with leading advisors in the field from Fasken, a full-service law firm with offices across Canada as well as in the U.K., South Africa and China, to learn how the mergers and acquisitions (M&A) sector weathered the storm, and why expectations are high for the year ahead.
At the beginning of COVID-19, the uncertainty associated with the novel virus had a substantial impact on transactions.
“The fear of the unknown put new deals on the back-burner, but many deals that had been signed or were close to that stage proceeded,” said Gesta Abols, a mergers and acquisitions lawyer at Fasken’s Toronto office. “So we did see the volume drop initially; but thankfully there were other factors at play, such as historically low interest rates, which continue to exist today, that countered the impact of COVID-19.”
Despite the initial cooling of the M&A market at the onset of the virus in North America, Abols said he was pleasantly surprised at the efficacy and adaptability of both clients and colleagues alike.
“COVID has resulted in tremendous loss and hardship. It’s also created challenges for all of us and our clients,” he said. “Our collective ability to react and adapt, and the resiliency of our economy has been highly visible throughout the last year,” he said.
Following the tumultuous spring, transaction volume began to pick up again in early summer and continued to improve during the fall and into the end of the year. Experts cite interest rates and available capital as being among the driving factors of the M&A market’s revival, and expect things to continue to improve.
“As the uncertainty continues to wane, low interest rates and a substantial amount of available capital, whether it’s private equity or institutional money, will drive transactions and that capital will be put to good use,” said Blair Horn, a leading M&A and securities lawyer based in Fasken’s Vancouver office. “I think we’ll see a continued increase in transaction volume across the board.”
The expectation for 2021 is that these factors will combine to create a hospitable environment for transactions.
“From our perspective, this is a very good time for deal making as there are many buyers out there looking for opportunities, and there is a lot of money on the sidelines waiting to be deployed,” said Horn. “There are great assets in Canada, and from a buyers’ perspective, there are a lot of opportunities to be had. We expect renewables and tech overall to be sectors to watch, as well as agribusiness and the cannabis space, particularly in the US once the Biden administration settles in.”
Despite the novel stresses created by the pandemic fallout, M&A advisors are well versed in handling concerns of buyers and sellers and as such, are in a good position to guide clients through transactions no matter the circumstances.
“COVID has certainly created complications along the way, but dealing with unique issues is a regular part of what we do as M&A advisors,” said Abols. “Selecting the right advisor is increasingly important; you want to be able to work with a team that provides strong M&A coverage, has relevant industry expertise and also has the support of lawyers in the relevant specialty areas. Fasken provides these services across our platform and our clients benefit from a team that can pull from the necessary resources when required.”