Canadian M&A in 2025: Looking Ahead with Cautious Optimism
January 2, 2025 · 3 mins
Despite potential headwinds, the Canadian M&A landscape looks promising in 2025 following several years of disruptions. Factors such as rising interest rates, inflationary pressures and global supply chain disruptors led many businesses to adapt a more cautious approach, prioritizing stability over expansion in prior years. Here are some key reasons for optimism as we enter the New Year.
Rising Private Equity Appetite for Portfolio Companies and Add-On Opportunities
PE firms are expected to play a significant role in the Canadian M&A market in 2025. These firms are increasingly interested in acquiring high-growth businesses to expand their portfolios, particularly in sectors such as technology, healthcare, industrials, and manufacturing. Many PE firms are also focused on add-on acquisitions, where they seek to acquire smaller companies that can complement or enhance the performance of existing portfolio businesses.
For business owners considering a sale, this rising PE appetite presents an opportunity to sell to financially sophisticated buyers who can offer not only attractive valuations but also the potential for continued growth and support post-sale. The ability of PE firms to structure deals flexibly, with varying levels of equity involvement and financing options, provides business owners with a range of options to consider when exiting their business.
Interest Rate Decrease
The Bank of Canada delivered another 50-point basis cut to interest rates on December 11th, bringing the central bank’s benchmark rate to 3.25% from 5% last year. The expectation is that interest rates will continue to gradually decrease in 2025 landing somewhere between 2% to 3%, boosting market liquidity and stimulating M&A activity.
Lower rates will make financing more accessible for buyers, increasing their purchasing power and potentially boosting valuations for businesses on the market. For business owners, this could translate to not just higher valuations but more competitive deal terms, especially for those in sectors that are poised for growth.
The Rise of Cross-Border Transactions
More U.S. companies are seeking acquisitions in Canada due to a combination of strategic, economic, and operational factors. Canada offers a stable and predictable business environment, close proximity to the U.S., similar legal and regulatory frameworks, and an opportunity to diversify geographically and reduce risks of a sole domestic market.
For business owners, the rise in cross-border transactions presents an opportunity to tap into a larger pool of potential buyers. This can result in more competitive and strategic offers, as U.S. buyers may bring not only financial resources but also expertise and a broader market reach.
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The Canadian M&A landscape in 2025 appears to be poised for growth. However, there are a number of potential obstacles that could hinder the growth’s full potential. How will the reduced immigration targets impact businesses? Will the heavy debt burden of Canadians impact residents’ household spending? Will the amendments to the Competition Act have a greater impact on small and medium sized transactions in Canada that are part of a PE roll-up strategies or have a foreign acquirer? Finally, and the big one, what are the impacts on Canada as Donald Trump begins his second presidency of the United States on January 20, 2025?
Peter MacSwain
peter.macswain@confederationgroup.ca
