Why Private Equity Firms Are Targeting Canadian Businesses as Add-ons

By Generational Group

08/23/2016

Canadian proximity to the U.S. means that quite a bit of Canadian M&A activity tends to mirror U.S. trends. This is especially true of private equity funds, who are active in Canada, as in the U.S. via “add-on” activity.

For those who are unfamiliar with the concept, an add-on acquisition is a company targeted by an equity firm that matches an earlier investment in a platform company. The platform tends to be larger and may have a good market share in a fragmented industry. Add-ons that are bolted on to the larger entity are usually much smaller and can have earnings as low as £500 million or less.

This has become a more popular acquisition strategy as equity firms learned in the last recession that attempting to a hit home with a few billion-dollar deals can be risky. It is better to make a manageable investment in a mid-sized platform and then look for strategic additions in synergistic industries over the next 5-7 years.

This is a win-win situation for sellers as many of these add-ons are structured as partial sales, where the owner is retained once the deal in closed and has a minority interest in the new, growing entity.

This is good news if you own a profitable, growing Canadian company. Therefore, now might be a good time to consider implementing your exit strategy. According to Thomson Reuters no M&A consulting firm has closed more deals over the last few years in North America than Generational Group.

We hold informational, educational exit planning seminars throughout the country on a regular basis. Find your nearest one today.