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A pedestrian walks past a closed storefront on St. Catherine street on Oct. 8, 2020 in Montreal.

Ryan Remiorz/The Canadian Press

Scott Dunlop’s company is all about delivering what he calls the “wow moment.”

That’s the point during a concert when his team at Pyrotek Special Effects Inc. sets off wild fireworks and lasers or ignites infernos behind artists such as Bruno Mars, Rihanna and Post Malone. Since COVID-19 prompted limits on large gatherings, there have been precious few opportunities to light up stages around the world.

“The live-entertainment industry basically shut down in the middle of March and it remains closed, and that’s purely a function of the restrictions that have been put on mass gatherings worldwide, and that is continuing,” Mr. Dunlop said.

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Pyrotek, which has about 50 employees in Canada and the United States, has stayed afloat over the past seven months by using the available government wage supports, negotiating flexibility with its banks and getting its owners to inject extra cash.

The company, based in Markham, Ont., is in better shape than many. A new survey of small and mid-sized businesses by consultancy KPMG Canada paints a dour picture, finding owners fearing for their companies' survival and, in many cases, wishing they had sold out before. This could mean a wave of consolidation.

Pyrotek must now plan just a few months at a time, and that makes for an uncertain future. But Mr. Dunlop may add to his business through acquisitions as competitors in worse financial shape consider selling out – or parting with pricy equipment used for big-ticket events and tours. “We remain attentive to those kinds of opportunities. If and when they arise, they could be interesting and we will definitely look at them," he said.

“Businesses just aren’t going to make it through. Their bankers have pulled the plug, or their owners have decided that they don’t want to keep funding a business into a giant question mark.”

In the KPMG poll of 500 company owners and decision makers, 31 per cent are worried that they lack the resources to keep their businesses running through lockdowns that could accompany the second wave of infections. More than a tenth say they do not have the cash to keep operating “for the foreseeable future.”

This all has bearing on mergers and acquisitions. On the deal front, a quarter of entrepreneurs say they regret not selling their businesses earlier. Another 25 per cent say they are now in the process of trying to sell their operations. But that is not proving easy in uncertain times brought about by the pandemic, said John Cho, Partner and National Leader, Deal Advisory, at KPMG Canada.

Most sellers whose companies are in distress would like to garner prices reflecting the business conditions before March. In some cases, those that have thrived during the pandemic, purveyors of home technology, retail groceries or home-improvement supplies, want valuations for conditions that may not be sustainable postpandemic.

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In addition, government programs that have been a lifeline for many businesses across the country, such as wage and rent subsidies, have also complicated the calculus for assessing the worth of companies to be sold or recapitalized, he said.

“That is also providing a cloud that makes it difficult in terms of visibility on the success of M&A transactions, and really the visibility around future performance for businesses, which also speaks to valuations,” Mr. Cho said.

Indeed, 46 per cent of business owners said they do not have an accurate picture of the value of their business owing to the effects of the pandemic. Of entrepreneurs who plan to sell their companies within the next two years, 54 per cent said they can’t give a value.

Valuation has been front and centre among large companies that had negotiated deals before the pandemic. Last week, Transat AT Inc. agreed to accept $530-million less to close a long-delayed takeover by Air Canada as the travel industry sputters.

Among smaller companies, some talks have broken off in the past several months, but deals are still being done despite the financial uncertainty, Mr. Cho said. Some of that is at least partly because of pressure being placed on distressed companies by their creditors.

Gastops Ltd., an Ottawa-based supplier of high-tech devices for aerospace, power generation and shipping, has been partly insulated from the full effects of the downturn by its diversity of revenue from various industries. Still, business is down 15 to 20 per cent from last year, said chief executive Shaun Horning. The company, which has 170 employees, provides continuous sensing equipment for industrial engines with spinning parts, such as jet and wind turbines.

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Gastops was considering acquisitions before the pandemic. The trick now is evaluating the worth of potential targets.

“I can see a lot of cases where the buyer and seller are not going to be on the same page in terms of valuation, just because of how we would cost risk versus how a seller would cost risk,” Mr. Horning said. “If you’re selling, you’re looking at what you thought six months ago, and it’s hard to take a hit.”

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