Recent news reports show U.S. tariffs threatening to affect overall M&A activity in Canada, but U.S. private equity firms remain active in Canada’s P&C brokerage space, says one financial services expert.
“There’s enough in Canada, and there’s a number of processes that are going on right now [where] we have a U.S. private equity [firm] involved,” says Andrew Mathias, managing director and partner of KPMG Corporate Finance, the firm’s investment banking group.
“And I know some larger ones that have U.S. private equity that are active, and there’s been no slowdown with this discussion.”
Related: What’s AI’s role in brokerage M&A?
Although M&A markets are assessing the potential impacts of tariffs, and possibly counter-tariffs, brokerage businesses are viewed differently from businesses like retail, which must ensure they’re able to put products on shelves.
“U.S. private equity firms remain highly focused on the Canadian landscape, as the U.S. market is deeply saturated due to competition among many other PE firms and lots of strategics,” Mathias tells CU. “Multiples remain high, and so coming to Canada means there’s less competition. And because of the Canadian-to-U.S. weakened dollar, they’re buying at the same multiples, but cheaper overall.”
Tech acquisition drivers
Brokerages acquiring competitors may be primarily interested in expanding operations and accessing new markets, Mathias says. But they’re also interested in harnessing artificial intelligence (AI) applications being used by the firms they buy.
But when acquisitions are keyed to obtaining AI tech, due diligence will be applied to ensure those apps are a good fit for existing operations, he adds.
“If I’m a consolidator and I want to acquire a tech play, I want to do it once,” he tells CU. “I don’t want to acquire multiple different tech plays, then I have the issue of integration.”
Related: How AI is driving P&C brokerage consolidation
Sometimes, large brokerages with top-tier technology are reluctant to acquire firms using totally different, or custom, AI and tech functions simply because of integration barriers.
“It creates a bit of a wall,” Mathias adds. “Where I’m seeing the larger players looking at AI, they’ve built their own platforms, or they found the right target to acquire that has utilized technology… That’s what gives them the synergy to introduce AI into a brokerage that doesn’t have it, versus taking their platform and trying to layer it onto or replace an existing platform.”
Feature image by iStock/imagedepotpro
