As we enter 2025, the Canadian mergers and acquisitions (“M&A”) landscape is poised for a dynamic year. Building on the momentum of a resurgent 2024 — when the total value of deals increased by USD $51.4 billion compared to 2023, despite a slight decline 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.

What’s driving M&A activity in 2025?

Macroeconomic stability fuels confidence

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, in turn, helped narrow the valuation gaps between buyers and sellers that had hindered deal activity in prior years.

Currency dynamics will continue to influence cross-border transactions. A stronger U.S. dollar, particularly following Trump’s re-election, has made U.S. assets more expensive for Canadian buyers. However, it has also increased the appeal of Canadian assets for U.S. investors, especially in sectors such as critical minerals and technology.

Although 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 the explosive growth of artificial intelligence (“AI”). Companies are racing to acquire AI capabilities, proprietary data, and supporting infrastructure such as data centers and energy grids to stay competitive. Both strategic buyers and private equity 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 further bolstered activity in this sector. Geopolitical concerns over supply chain security are expected to keep the sector a focal point for both domestic and international investors.

Healthcare and biotech

The healthcare sector presents a mix of opportunities and challenges. Pharmaceuticals and medical technology are poised for growth, driven by aging demographics and innovation. However, PE involvement in healthcare 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 the oil and gas sector. Liquefied natural gas (LNG) 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 face pressure to deploy capital. Platform acquisitions and add-ons will remain popular strategies, particularly in sectors such as technology, healthcare, and infrastructure.

A backlog of portfolio companies held longer than usual is anticipated to spur a wave of PE exits. To meet investor demands for liquidity, firms are exploring creative solutions, including dual-track processes (sale and IPO) and partial exits. The secondaries market, which has matured significantly in recent years, will also offer alternative pathways for PE firms to achieve liquidity.

Regulatory and Geopolitical Complexity

Heightened scrutiny

Regulatory regimes are expected to continue posing challenges for dealmakers in 2025. Canada’s Competition Bureau has intensified its scrutiny of large transactions, particularly in concentrated industries such as 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 (FDI) 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 Trump administration’s proposed 25% tariffs on Canadian imports have introduced uncertainty into cross-border transactions. In response, many Canadian companies are pursuing defensive acquisitions in the U.S. to establish a local presence and mitigate tariff risks, underscoring the importance of 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 such as technology, healthcare, and critical minerals are expected to command premium valuations, while manufacturing may experience more moderate activity. To address lingering uncertainties, dealmakers are leveraging innovative structures, including:

  • Earnouts and Contingent Value Rights (CVRs): These tools enable buyers and sellers to bridge valuation gaps by tying payments to future performance.
  • Deferred Payments and Minority Equity Rollovers: These structures align the interests of buyers and sellers while mitigating risk.
  • Representation and Warranty Insurance (RWI): Now a mainstay in PE transactions, RWI offers risk mitigation and streamlines 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 increasingly on the rise. While environmental, social and governance (ESG) issues may take a backseat to financial performance, activism aimed at spurring M&A will remain a key driver of activity.

Preparing for a dynamic year

2025 promises opportunities and complexities in the Canadian M&A market. Success will require creativity, agility, and thoughtful planning. Early engagement with regulators, robust due diligence, and innovative transaction structures will be critical to navigating the challenges ahead.

Conclusion: Seizing the opportunities of 2025

Canada’s M&A landscape in 2025 is poised to offer significant opportunities for growth and transformation. Whether you’re a private equity 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.

If you’re considering an M&A transaction in 2025, please feel free to reach out to the authors of this article for expert advice and support.