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Private company M&A in Canada

A review of purchase and sale agreements highlights three key considerations


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Private company M&A in Canada
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Every entrepreneur has heard stories of a private company merger or acquisition in which the acquisition was wildly over- or undervalued. In this rapidly changing marketplace, achieving mergers and acquisitions (M&A) that create shareholder value can be challenging. There are three primary factors that account for M&As failing to achieve the anticipated synergies:
  • Illiquidity: Volumes and aggregate values remain rather insignificant when compared to any other segment of the capital markets in spite of great increases in the number of participants and their sophistication. This illiquidity provides both buyers and sellers with negotiating leverage as the scarcity of opportunities to transact materially impacts value and terms of transactions. As a result, motivated buyers and sellers have consummated deals at extreme ends of the value spectrum.
  • Imperfect market information: Disclosure of transaction values and terms in the private M&A market is very limited. Prospective market participants can glean little from past transactions and rely heavily on professional advisors, industry standards, rules of thumb and other tools of the trade. In this environment, the sale of two identical businesses could occur at vastly different values and on radically different terms— one on Monday, the other on Friday—and no one might be aware.
  • Differential views of value drivers: Vendors tend to see value from their own perspective focusing on their past successes and future plans for the business were they to continue as owners. In this manner, vendors emphasize opportunities and discount risks which are well-known to them. A buyer’s perspective is driven by strategic considerations which emanate from the state and path of their existing business. Opportunities for a great deal abound where differential perspectives create a material overlap in value expectations between buyers and sellers. Conversely, where buyer and seller perspectives diverge, creating a value gap, the difference between failure and success is often determined by creative, thoughtful deal structuring.

What can be done to combat and even take advantage of these systematic inefficiencies in the private M&A marketplace? Read our study and learn new and flexible approaches towards future transactions.

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