Mergers and acquisitions are expected to heat up in Canada this year amid hopes that stagnant economic conditions will stabilize.

Michael Morrow, managing director of M&A and capital markets at BDO Canada, said mergers and acquisitions were down about 35 per cent in 2023 due to the uncertainty surrounding the economy -- but he expects pent-up corporate dealmaking will rebound in the back half of 2024 as the economy improves, with potential interest rate cuts and improving inflation figures.

“I think the first quarter will be a little bit slow as these uncertainties from 2023 linger for a little bit,” Morrow told BNNBloomberg.ca in a telephone interview.

 “Beyond that, we see some of these uncertainties starting to clear, and they've started to clear already, but … it usually takes a quarter or two for you to see it in the M&A activity.”

Morrow expects mergers could be up as much as 40 per cent in 2024 compared to the year prior.

“I think that sets up well for the following year – 2025 – for us to potentially have record M&A volumes again,” he said.

“There's a really strong backlog of businesses in Canada that need to transition and a lot of business owners have been holding off. Certainly some of our clients have been holding off on going to market to sell their business.”

A December report from accounting and advising firm PWC made similar observations to Morrow.

PWC’s researchers found the third quarter of 2023 was the quietest for mergers and acquisitions since 2017, with fourth-quarter projections also showing soft movement.

The report also suggested that once interest rates come down, possibly early in 2024, companies considering transactions will have “a path to return to a normalized level of deal flow.”

Law firm Bennett Jones also believes the M&A landscape in 2024 is primed for a rebound.

A recent blog from the company suggested buyers were unwilling to take on additional risk last year, but as the market stabilizes, it predicted dealmakers will be looking to capitalize. 

WHAT SECTORS COULD SEE THE MOST DEALS?

Overall, Bennett Jones predicts fewer “megadeals” in 2024, and more large companies targeting small and mid-cap firms.

Morrow predicted the rebound in M&A activity would be led by technology, healthcare, food and beverage – all industries that have been sensitive to the economic slowdown.

PWC predicted commercial real estate, energy and mining could be particularly robust in the merger market this year.

“The overall M&A outlook for critical minerals remains very positive, with miners continuing to position themselves for the energy transition, as demand for critical minerals is expected to grow,” the report said.

“Security of supply and building local supply chains are also major focuses in critical minerals M&A, with supply chain participants becoming more concerned about future supply of critical minerals.”

SOME DEALS ALREADY IN THE WORKS

While experts expect the early part of 2024 will be slow, at least one major deal is expected to be finalized.

The Royal Bank of Canada’s $13.5-billion acquisition of HSBC Canada won federal approval late last month and is expected to close in the first quarter of 2024.

Looking further ahead, Swiss commodities trader Glencore has projected that its US$6.93-billion deal for a 77 per cent stake in Teck Resources’ coal business will be finalized in the third quarter.