Views From the Market

Mario Nigro speaks with Matthew Burpee of Kepler Capital, a Canadian firm focused on the lower end of the North American midmarket(typically under $3 million EBITDA/cash flow). Often overlooked by investors, these businesses offer many opportunities, and Matthew shares Kepler’s strategy of long-term collaboration and investment in outstanding enterprises that are “small” only because their market niche or geographic region is small.

Mario’s guest on this podcast, Stikeman Elliott M&A partner Michael Decicco, has been closely tracking the development of the Employee Ownership Trust concept in Canada, which is being accelerated by changes to certain federal laws. Under the current proposal, business owners who sell to EOTs would enjoy some modest capital gains tax advantages. However, as Mike and Mario discuss, it is an open question whether these will be sufficient to make EOTs a popular exit alternative.

Today’s podcast guests are Colin Walker and Stephen Ng of Crosbie & Co., a midmarket M&A leader since the 1980s. While current market conditions can be challenging, Stephen and Colin continue to see significant deal flow driven by baby-boomer retirements and opportunistic acquisition strategies focused on high-quality businesses. As the “new normal” of higher interest rates, tighter diligence and lender caution sinks in, they are optimistic that the market will strengthen in the second half of 2023.

Mario’s guest today is Stikeman Elliott’s Khalfan Khalfan, an expert in employment-related transactional issues. Topics discussed include, among others, new statutory curbs on the enforceability of employment non-competes, Canadian approaches to post-closing retention of vendor management, independent contractor mischaracterization issues and Competition Act prohibitions on no-poach agreements and wage-fixing between unrelated entities.

Mario’s guest this week, Eric Castonguay of PwC’s Corporate Finance Group, discusses the resilience of midmarket M&A in Canada, which continues to be driven by the aging of the baby boomers, Covid burnout and a sense among corporate leaders that long-term survival requires transformative change. Private equity’s need to deploy capital is also a factor. Even so, 2023 is in many respects a buyer’s market, with today’s typical deal being more structured, more strongly diligenced and slower to close than was the case in the frenzy of 2021.

In this podcast, Mario speaks with Liz Pillon, leader of the restructuring practice in Stikeman Elliott’s Toronto office, about the role that restructuring professionals are playing in today’s M&A market. In 2023, Liz has noted a considerable increase in formal insolvency proceedings after a period in which lenders had been hesitant to initiate them. If involved early enough, restructuring lawyers can often help businesses find out-of-court alternatives, including by connecting them with investors who specialize in distressed assets. Liz and her team are currently seeing extensive “distressed M&A” interest in sectors such as real estate, distribution/manufacturing and pharma, among others.

Today’s guest, midmarket transactional diligence specialist John Caggianiello, shares his “in the trenches” view of the current state of Canada’s M&A market. After a noticeable slow-down in Q1 2023 that particularly affected tech deals and clinical (e.g. dental) roll-ups, activity seems to have increased in March and April. However, the deals that are getting done are proceeding more slowly as buyers, concerned about a possible recession, insist on up-to-the-minute numbers and greater clarity with respect to soft adjustments.

Mario’s guest this week is Michael Platt, CEO of Carma Corp. Based in Lindsay, Ont., Carma provides sub-metering services, generating data on utility usage in residential buildings and commercial enterprises. Michael attributes his success in breaking into this competitive industry to his efforts, as a self-funded searcher, to build trust with the company’s owner. He has applied the same relationship-building philosophy to the additional acquisitions Carma has made as it has expanded both geographically and in terms of its service offerings.

Joining Mario for this podcast is Ray Gingras of Coldwater Corporate Finance, who shares some of his experiences supporting owner-operators through the arduous and usually unfamiliar process of selling their businesses. While the economy may generally be slowing, Ray and his firm continue to be very busy as strategic buyers prioritize locking up the long-term value that Coldwater’s midmarket clients are able to provide.

Joining Mario Nigro is Larry Dunn of Endurance Search Partners, which has supported over 250 searchers across the U.S. and Canada since 2009. Larry and Mario discuss the current state of the market in the U.S. and Canada as well as the characteristics that Endurance looks for in successful searchers. In Larry’s view, the search sector is positioned for continued growth, even in challenging economic times.