Keeping afloat during mergers and acquisitions
Post-COVID, mergers and acquisitions (M&As) have continued to be a crucial indicator of Canada’s economic health. According to CVCA Intelligence Canadian Private Equity Market Overview H1 2024, there was $8.3B invested in 326 deals. These figures are comparable to market activity in 2023, but experts expect M&A activity to accelerate in the near future. This is a promising sign of the market’s resilience despite recent economic headwinds such as higher interest rates and inflation.
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Given the significance of this trend, it’s vital that CPAs help their companies and clients navigate the tumultuous waters of M&As as smoothly as possible, according to Mary Mathews, accounting standards and advisory partner at BDO Canada. To help CPAs do just that, Mathews and Anne-Marie Henson, a fellow partner at BDO Canada, held a session titled “The Impact of Mergers and Acquisitions on the Finance Function” at CPA Canada’s The ONE National Conference this month.
“Canada’s sizable volume of M&As is partly due to our substantial number of small and midsize enterprises (SME),” says Henson. Coinciding with major deals like RBC’s recently completed $13.5 billion acquisition of HSBC Canada, many of Canada’s approximately 1.2 million SMEs are experiencing changes in ownership driven by the country’s aging population. “As baby boomers sell their businesses or step down from their roles ahead of their retirement, we're seeing a major transfer of wealth with new buyers coming in and kids taking over family businesses,” says Mathews.
Before a potential transaction, Mathews believes CPAs should be proactive in their roles as finance leaders within organizations by staying up to date on the short and long-term direction of their company. “If you’re not involved or privy to conversations happening at the leadership or board level, you’re going to be caught off guard when that M&A transaction comes along,” she says. Henson notes that a strong awareness of global market trends is also imperative, especially since Canada is a major draw for international investment. “This global interest underscores the importance for Canadian CPAs to be well-versed in cross-border transactions and international market dynamics,” she says. With private equity dry powder hitting a record US$2.59 trillion globally in 2023, she advises CPAs to carefully monitor the ripple effects of such market trends on Canadian businesses seeking international M&A opportunities.
Having a proactive and ongoing understanding of macro market trends and the internal vision of companies and clients is essential, as the main challenge during M&As is ensuring businesses are prepared for such significant transactions. For example, Mathews points out that inadequate financial reporting and unpreparedness can lead to delays or a lower valuation. “Deals also die all the time because companies are not ready or don’t have strong financial information,” she says. This reality emphasizes the need for CPAs to guarantee that their companies are well-prepared with accurate and comprehensive financial data.
Finally, Henson adds that CPAs have an equally important role to play during the post-transaction integration phase. While the focus is often on optimizing synergies through operations (for example, by identifying cost reductions via economies of scale or maximizing revenues by expanding customer bases), synergies through the finance function can be overlooked. “Being mindful of the finance function—everything from accounting and reporting to consolidation and risk management—shouldn’t just be an afterthought; it should be integral to your planning process,” says Henson. “I'd love our session attendees to leave with confidence and understanding that this approach actually helps increase your valuation and realize your synergies from the M&A more quickly.”