Mergers and Acquisition: A Year in Review of 2021

From the new all-time highs across public equity markets, real estate, cryptocurrencies and global M&A activity, to the short squeezes, SPAC craze, and volatile supply chain and labour force issues, 2021 was an unusual year to say the least.

Building off a strong finish in 2020, 2021 M&A activity was robust for the Canadian lower middle market. Renewed optimism from the easing of public health restrictions, pent up demand driven by record low borrowing rates and ample dry powder, combined with a backlog of business succession plans due to the pandemic have contributed to the elevated M&A activity for owner-managed businesses. Not all outcomes were equal, as industries with minimal to no impact from COVID-19 were in higher demand and resulted in higher valuations compared to industries that were significantly impacted by the pandemic.


Although travel restrictions were lifted part way through 2021, the transactions that Smythe Advisory advised primarily involved virtual meetings and virtual due diligence in place of in-person meetings. Our expectation is that this shift to online transacting will continue for the foreseeable future due to the efficiency, effectiveness, and the cost savings.

Representing both sellers and purchasers in M&A transactions, several of the successful transactions we advised in 2021 were in industries that were primarily unaffected by COVID-19. Given the low cost of financing available and high demand from both strategic and financial buyers, we observed multiple offers at record high valuations to accompany seller-favourable transaction terms. Although maximum pricing was achieved in auction processes for companies in this category, single-party processes or unsolicited offers were generally priced to mitigate the risk of having to bid against others.

Conversely, for the transactions where the Target operated in an industry that was temporarily impacted by the economic shutdowns, we observed the following:

  • Certain buyers ignored the results from 2020, and based pricing on either pre- or post-COVID results.
  • Buyers were willing to pay for pre-COVID performance through single or multi-year earn outs or bonus payments if the business returned to pre-COVID levels.
  • More sellers were willing to provide financing in the form of a vendor takeback. This category of seller was also willing to explore a management buyout.
  • Some sellers were willing to explore selling a partial equity interest in the short-term, providing a path to 100% ownership for the buyer over the long term. This option was attractive for the seller as it provided a path to participate in the growth of the business.

For industries that were more broadly impacted by shutdowns, sellers were either willing to accept a discount in pricing, or decided to delay a sale until results returned to an acceptable and normal level. In some cases, business owners were forced to restructure or alter their business model to stay viable, with a view to re-visit a divestiture when performance stabilized.


As available capital remains at a record high, and the number of buyers looking to invest continues to expand, we expect M&A activity to remain strong for companies with an attractive growth profile, scale and brand power, and that are minimally impacted by potential COVID-19 disruptions.

For industries that are continuing to feel the impacts of COVID-19, we expect to see more of the same where sellers will be evaluating their willingness to build the business back up against their desire to move on. This might also involve selling a partial equity stake to allow the business owner to take some chips off the table now, and participate in the future growth of the business.

In either case, we expect to see a potential decrease in pricing depending on the pace of potential interest rate increases, as the overnight rate is expected to increase from 0.25% to near 2% by mid-2023.

Beyond the economic uncertainty due to COVID-19, we expect the rise in inflation, continued labour crunch and supply chain issues to contribute to a stronger focus on strategic partnerships in order to address or mitigate against these risks. This might translate into mergers to acquire technology or workforce, or to create economies of scale to offset rising costs.

If you are looking to purchase or sell a business or would like to discuss the observations made within this article, please contact a member of our team.