AI companies get shown the money.
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This must happen eventually, right? While major tech companies battle to produce the dominant LLMs that will power AI companies going forward, the smaller users of LLMs will benefit from their products and services getting traction – becoming cash flow positive and riper for investment. Over the course of time, AI start ups that don’t have a valid business case inevitably won’t make it.
The scramble for talent and proven technology, particularly in AI and related fields, will drive acquisitions of assets of pre-commercial companies and talent as the commercializable use cases of these technologies begin to take hold and larger players use these acquisitions to accelerate product development.
Acqui-hires pick up steam.
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The technology M&A market in Canada was resilient in 2023 due in part to the mid-market nature of the Canadian economy and generally smaller deal sizes relying less on debt financing. We expect that this will continue in 2024, despite the prediction that deal volumes will pick up due to market consolidation and the ever important need for strategic acquisitions, among other factors.
Slow and steady, and smaller.
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Many Canadian tech companies that went public during peak COVID years retreated from that strategy as their stock price lagged amid economic uncertainty. Though some are anticipating more active capital markets with pent-up IPO demand ready to launch, and interest rate relief in 2024, which could give renewed life to public share prices, we expect the pattern of tech companies going private to continue.
Going private.
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Semiconductor chip supply has emerged as a force in global geo-politics and should be featured prominently in the investment decisions of larger technology companies looking to shore up supply chains. Canada’s role in chip production pales in comparison to the world’s major producers, with Canadian producers receiving much less support than those in the U.S. receive under the U.S. CHIPS and Science Act. As a result, we won’t likely see any major direct impact on Canadian deal making as a result of increased attention on this sector.
The year of the semiconductor.
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Recent changes to Canada’s competition laws mean increased penalties and new factors for merger reviews, including network effects and non-price considerations
such as privacy. Many of these changes, both passed and proposed, are aimed at the digital sector. Similarly, proposed amendments to foreign investment laws may result in foreign investors facing greater scrutiny if their Canadian targets include large data sets or AI.
Increased investment scrutiny.
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Canada is adopting new cybersecurity laws and modernizing its privacy legislation with new individual rights, robust regulatory enforcement and significant financial penalties. In response, acquirors will increase legal and operational privacy and cyber due diligence to identify and allocate risks and avoid losses and liabilities for sellers’ non-compliance.
Normalizing privacy and cyber risk mitigation.
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