Mergers and acquisitions in Canada: Anticipated trends for 2025
The mergers and acquisitions (M&A) market in Canada saw a strong recovery in the latter part of 2024 after a dip in deal volumes in 2023 and early 2024. There are promising signs that this positive trend will carry over into 2025, provided trade uncertainties can be cleared up. Several key factors suggest the market is moving in the right direction, such as the global drop in inflation, the ongoing decrease in interest rates, and the noticeable increase in investment funds at private equity firms. However, challenges are also looming on the horizon in 2025, as shifts in geopolitics and trade issues have made the beginning of the year more cautious, with Canadian regulators keeping a close eye on M&A activities.
Positive signs abound for M&A activities in Canada, as there has been a gradual increase in the number of deals in 2024, coupled with a rise in overall deal value compared to the previous year. This upward trajectory from the latter end of 2024 continued to be a trend that many were optimistic would persist. A slew of indicators suggest that Canada’s M&A landscape is set for sustained growth in 2025.
The year 2025 commenced with the Bank of Canada slicing its policy rate by 25 basis points in January, with the possibility of further cuts down the line. Projections by TD Economics anticipate another 100 basis points in cuts before the year ends. These developments, along with the lessening of inflation and the availability of funding for deals under increasingly favorable terms, have the potential to stimulate M&A transactions. On another front, the depreciation of the Canadian dollar enhances foreign investors’ leverage. Moreover, private equity firms, bolstered by substantial dormant funds and an uptick in projected exits, were in a prime position to escalate their M&A undertakings throughout 2025.
Canada has established a strong reputation for regulatory consistency and political steadiness, attracting international investors to a secure market. Canadian entities in high-growth sectors remain attractive targets for investors eager to broaden their market footprint and enhance their portfolios. Remarkably, the materials industry in Canada experienced significant public M&A dealings in 2024, with crucial minerals luring foreign investors due to their role in the renewables transition. Other appealing sectors encompass information technology, financial services, and healthcare, where demand has surged. Efforts to reduce provincial trade impediments and boost productivity through innovation, AI, and digital transformation might further enrich the M&A landscape, particularly for local transactions.
The dispute between Canada and the U.S. surrounding tariffs and the subsequent policy coherence threatens the M&A markets in both territories as uncertainties linger. Traditionally, the U.S. has been Canada’s largest source of foreign investment, with Australia, the U.K., and France following closely behind. Conversely, the U.S. ranks as the top destination for Canadian buyers. However, Canadian corporations with U.S. exposure face uncertainty that may dull their appeal to local and foreign buyers alike. The plunging Canadian dollar adds to the hurdles for Canadian buyers eyeing U.S. or other global acquisitions. Consequently, Canadian companies could pivot towards strategic U.S. acquisitions to bypass U.S. tariffs on Canadian exports by taking over U.S. businesses or plants, securing market access.
Bottom line: despite short-term predicaments linked to trade uncertainties, trade-related structural adjustments could spawn new cross-border M&A transactions in the long haul. Additionally, further stimulation could stem from trade uncertainties subsiding. However, the landscape is sure to evolve in ways that might necessitate alternative deal structures, enhancing stakeholders’ capacity to circumvent risks and manage valuation disparities attributed to changing trade conditions. The overarching goal is to prepare for an M&A uptick once the obstacles ease, unlocking new prospects and better conditions for industry players as they seek out profitable deals in the market.
