Canada’s M&A Outlook for 2025: A Year of Optimism and Complexity

As we enter 2025, the Canadian mergers and acquisitions (“M&A”) landscape is poised for a dynamic year. Building on the momentum from a resurgent 2024, which saw the total value of deals rise by US$51.4 billion from 2023 despite a slight decrease in the number of transactions, dealmakers are optimistic about robust activity across sectors. However, this optimism is tempered by regulatory scrutiny, geopolitical uncertainty, and the need for agility in navigating complex transactions. For private equity (“PE”) firms, strategic buyers, and legal practitioners, 2025 presents opportunities and challenges that demand creativity, careful planning, and a nimble approach.

Macroeconomic Stability Fuels Confidence, Driving M&A Activity in 2025

The second half of 2024 saw significant macroeconomic improvements that set the stage for increased dealmaking in 2025.

Interest rate cuts by the Bank of Canada and the U.S. Federal Reserve stabilized financing conditions, making debt-fueled transactions more feasible. This helped narrow valuation gaps between buyers and sellers, which had hampered deal activity in prior years.

Currency dynamics will continue to influence cross-border transactions. A stronger U.S. dollar, particularly after Trump’s reelection, has made U.S. assets more expensive for Canadian buyers but has also increased the appeal of Canadian assets for U.S. investors, especially in sectors like critical minerals and technology.

While inflation eased in late 2024, its lingering effects on supply chains remain a key factor in valuation models, with buyers prioritizing resilience and reliability. These considerations are expected to shape transaction structures and pricing in 2025.

Sector-Specific Opportunities

Technology and AI

Technology continues to drive M&A activity, fueled by explosive growth in artificial intelligence (“AI”). Companies are racing to acquire AI capabilities, proprietary data, and supporting infrastructure such as data centers and energy grids to remain competitive. Both strategic buyers and PE firms are aggressively pursuing deals in this space, with AI-related acquisitions expected to dominate headlines in 2025.

Critical Minerals and Energy Transition

Canada’s leadership in critical minerals, such as lithium and copper, positions it as a global hub for M&A in the energy transition. These materials are essential for electric vehicle (“EV”) batteries and renewable energy projects, and federal incentives have only bolstered activity in this space. Geopolitical concerns over supply chain security are expected to keep the minerals sector a focal point for domestic and international investors.

Health Care and Biotech

The health-care sector offers a mix of opportunities and challenges. Pharmaceuticals and medical technology are poised for growth due to aging demographics and innovation, but PE involvement in health-care services continues to face scrutiny at the provincial level, reflecting ongoing regulatory challenges.

Energy and Natural Resources

Rising global energy demand, coupled with Canada’s abundant resources, is expected to drive consolidation in oil and gas. Liquefied natural gas infrastructure, particularly for European exports, presents significant growth opportunities. Meanwhile, Canada’s renewable energy projects remain attractive for sustainability-focused investors.

Private Equity’s Continued Dominance

PE firms are expected to play a pivotal role in Canada’s M&A activity in 2025. With record levels of dry powder (over $2.9 trillion globally), PE firms are under pressure to deploy capital. Platform acquisitions and add-ons will remain popular strategies, particularly in sectors like technology, health care, and infrastructure.

A backlog of portfolio companies held longer than usual is expected to spur a wave of PE exits. Firms are exploring creative solutions, such as dual-track processes (sale and initial public offering (“IPO”)) and partial exits, to meet investor demands for liquidity. The secondaries market, which has matured significantly in recent years, will also provide alternative pathways for PE firms to achieve liquidity.

Regulatory and Geopolitical Complexity

Heightened Scrutiny

Regulatory regimes will continue to pose challenges for dealmakers in 2025. Canada’s Competition Bureau has intensified scrutiny of large transactions, especially in concentrated industries like technology and critical minerals. This has lengthened deal timelines and raised execution costs, making early regulatory planning essential.

Globally, the proliferation of foreign direct investment regimes adds complexity to cross-border transactions. For deals involving sensitive sectors, such as semiconductors or cybersecurity, national security reviews will remain a significant hurdle.

The Impact of Trump’s Tariff Threats

The proposed 25 percent tariffs on Canadian imports by the Trump administration have introduced uncertainty into cross-border transactions. Many Canadian companies are pursuing defensive acquisitions in the United States to establish a local presence and to mitigate tariff risks, underscoring the need for adaptive strategies in the face of geopolitical challenges.

Valuation Trends and Creative Deal Structures

Valuation dynamics will play a central role in shaping Canadian M&A activity in 2025. High-growth sectors like technology, health care, and critical minerals will command premium valuations, while manufacturing may see more moderate activity. To address lingering uncertainties, dealmakers are leveraging innovative structures, including:

• Earnouts and contingent value rights. These tools allow buyers and sellers to bridge valuation gaps by tying payments to future performance.
• Deferred payments and minority equity rollovers. These structures align buyer and seller interests and mitigate risk.
• Representation and warranty insurance (“RWI”). RWI has become a mainstay in PE transactions, offering risk mitigation and streamlining negotiations.

The Role of Shareholder Activism

Shareholder activism is expected to intensify in 2025 as M&A activity accelerates. Activists are likely to pressure companies to pursue strategic transactions to unlock value, with cross-border activism on the rise. While environmental, social, and governance (“ESG”) issues may take a back seat to financial performance, activism aimed at spurring M&A will remain a key driver of activity.

Conclusion: Seizing the Opportunities of 2025

Canada’s M&A landscape in 2025 is set to offer significant opportunities for growth and transformation. Success will require creativity, agility, and thoughtful planning. Whether you’re a PE investor deploying capital, a strategic buyer pursuing transformative acquisitions, or a business navigating the complexities of cross-border transactions, preparation and adaptability will be key. Early engagement with regulators, robust due diligence, and innovative transaction structures will be critical to navigating the challenges ahead.