Canadian private companies showing greater interest in M&As to fuel growth:
PwC survey

TORONTO, Oct. 25 /CNW/ - The 2010 Business Insights® survey issued by PwC reveals that Canadian private companies are considering a merger or acquisition (M&A) to fuel their growth strategy in the next 12 months, with one-third of the survey's respondents (34%) saying that mergers and acquisitions would be part of their growth plans, up from 28% in 2009.

Brooke Valentine, managing director, corporate finance, PwC, says this interest in M&A activity among Canadian private companies reflects a healthier economy and a return to historical levels. "If you look at year-to-date, September 2009 to 2010, for a lot of observers it felt like a very slow M&A period, but when you see the data, all that happened is we reverted back to the historical norm," says Valentine. "The reason it felt slower was because the preceding year had exceptionally high levels of M&A activity, which were well above historical averages. Deals are still happening. We're back at the long-term average volume."

Perhaps the biggest revelation from this year's findings comes not from the fact that Canada's private companies are planning for growth, in many cases significant growth, but in how they plan to achieve that growth. Maintaining and gaining market share by taking it away from competitors is a key strategy for the over half (53%) of this year's respondents. This, coupled with the fact that competition was cited (by 40%) as the top issue for the next 12 months, makes it clear that private companies need to consider all of their options to increase their competitiveness and profitability.

In a highly competitive marketplace, in which everyone is trying to seize a bigger piece of the market share pie, M&As could be poised to become an even more powerful tool to fuel growth for private companies. "An M&A strategy is particularly key for mature companies, whose organic growth is typically at a much lower rate than start-ups and younger companies," says Valentine. "Mature companies tend to experience growth that resembles the overall growth that the economy is experiencing. By acquiring a business, they can substantially increase that level of growth because they can quickly achieve much higher levels of sales and profitability," he says.

This year's report reveals that 61% of respondents do not plan to access financing in the next year to fund their growth. "One of the reasons the majority may not be planning to borrow is because revenue growth is getting them back to levels that they had reached previously on a historical basis so they are able to fund their own growth," says Eric Castonguay, managing director, corporate finance, PwC. Companies are also funding growth through re-investing profits while taking a cautious approach to capital expenditures. With the lessons learned from managing through the recession, companies continue to focus on getting the most out of their existing asset base. Whatever the reason, for the most part, the private companies surveyed appear to have arrived at the beginning of the recovery well-capitalized and ready to grow."

For those companies that do plan to access capital, there are several options. "The fact is credit is much more accessible today than it was 18 months ago," says Castonguay. "Canada's banks have also come through the recession well-capitalized and are now eager to grow their market share. After the credit crisis, there were substantial increases in spreads that lenders were requiring on their loans and to some extent those spreads have declined over the past year."

The market has become much more liquid and competitive. This new development has not been lost on private company leaders who are now shopping around when it comes time for renewal—and they are not limiting themselves to conventional loans from the banks.

"Private company leaders are taking a comprehensive look at alternative sources of capital, and 'market testing' the spreads on loan renewals," says Castonguay.

The sixth annual Business Insights Survey examines issues affecting Canadian private companies. In the summer of 2010, over 200 leaders of Canadian private companies completed the survey from a broad range of industries. The sample is concentrated around four provinces - British Columbia, Alberta, Ontario and Quebec.

Please visit www.pwc.com/ca/businessinsights for more information on the Business Insights 2010 survey, including:

• A copy of the full Business Insights report
• Regional "On-the-Ground Observations" reports for British Columbia, Alberta, Ontario and Quebec
• In-depth interviews with the leaders of select private companies - Golden Boy Foods Ltd., West Canadian Industries, Budds' Group of Companies, and Cardinal Couriers Ltd.

About Private Company Services (PCS)

More than 65% of PwC Canada's clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC's Private Company Services (PCS) group is a dedicated team of business advisors who help private company owners resolve day-to-day business issues and achieve long-term success. PCS offers the perspective of a third party with professional industry knowledge, business consulting, tax and accounting expertise.

For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private

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