An Update On Private Equity M&A In Canada

H1 2025

M&A activity in 2025 has been defined by fewer deals but larger overall deal values, underscoring a bifurcated market. Globally, overall deal value rose sharply, driven by a resurgence in mega-deals and greater private equity participation, even as the number of transactions declined. At the same time, mid-market deals remain the backbone of activity, particularly in Canada, representing 85% of deals – so the impact of mega-deals was less pronounced than in the US.

In the US, private equity deal counts fell quarter-over-quarter (Q1 vs Q2 in 2025), reflecting caution and underscoring the increased pressure on PE firms to find exit opportunities for their holdings. Smaller transactions under $500 million and PE-backed deals in the $10–500 million range showed notable declines, highlighting a pullback in the middle market. Even as the middle market pulled back, Q3 recorded a rebound in private equity deal value, suggesting investors are selectively pursuing larger, higher-impact opportunities.

Here are some key data points from 2025 YTD:

From LSEG:

• On a global scale, M&A activity (measured by deal volume) was up 15% (YoY) in H1 2025 to US$885.2 billion. When measuring the number of deals, however, H1 2025 was down 15% YoY.
• Globally, mega-deals have increased with 27 deals over US$5 billion totaling US$345 billion in H1 2025; up 7% from H1 2024.
• Private equity-backed buyouts accounted for 21% of global M&A activity in H1 2025; up from 19% in H1 2024.
• Deals with a value of less than US$500 million totaled US$171.3 billion globally in H1 2025; down 4% by value and a 14% decrease compared to 2024 levels.

From Crosbie & Company:

• Mid-market transactions (valued below $250M) continue to be the largest component of the broader market in Canada, representing 85% of deals with disclosed values.
• There were 230 mid-market transactions, in Q2 in Canada, up 19% from Q1, totaling $6.7B in value, up 50% over the same period.
• In Q3, in Canada, activity in the mid-market showed some softness, with deal count down 7% from quarter-over-quarter (Q3 vs Q2) to 214 transactions.

From Houlihan Lokey¹:

• The total number of completed US private equity deals declined from approximately 2,000 in Q1 2025 to around 1,500 in Q2 2025. This represents a notable quarter-over-quarter drop in deal volume, reflecting a more cautious investment environment during the second quarter.
• Private equity firms are under increasing pressure to pursue exits, as 37% of their inventory of US Private Equity-Backed Companies have been held for five years or longer.
• Canada ranked as the most active country for inbound cross-border transactions, with 166 transactions year-to-date (YTD) 2025 totaling approximately $16.8 billion in transaction value.
• Canada ranked second in outbound activity, with 219 transactions YTD 2025 and a total transaction value of approximately $31.5 billion.
• Both public and private M&A activity in Canada generally mirrored global and US trends, with transaction values increasing in YTD 2025 despite a continued decline in deal volume. In 2024, there were 1,842 transactions totaling $0.07 trillion. In contrast, YTD 2025 saw 1,672 transactions, but with a higher total transaction value of $0.11 trillion.

From Mergermarket:

• North American M&A activity in the first nine months of 2025 reflected a market bifurcated by scale.
• Total deal volume rose 32% year-over-year to USD 1.78tn, the second-best nine-month period on record after 2021ʼs high of USD 2.3tn.
• Yet, deal count fell 6% to 9,071 – the lowest since 2009, underscoring a more cautious approach from middle-market companies.

From GF Data:

• Private Equity firms reported 66 completed transactions ($10 million – $500 million enterprise value range) in Q3—down approximately 20% from the 83 deals recorded in the second quarter. Year to date, 211 transactions have been reported, representing a 27% decline compared to the same period in 2024.

From PE Hub:

• While prior data points indicated a decline in deal volume, in contrast, Q3 had 1,004 PE deals, with more than $199 billion in deal value. Equating to a 3.6% increase in deal volume, with 35 more deals than Q2, and almost $88 billion more in total deal value.

Deal Trends

Themes

The primary themes that are dominating the Canadian PE market are (1) uncertainty, (2) interest rate projections, (3) lending trends, (4) tariffs, (5) growth projections, (6) liquidity, (7) government focus on major projects, (8) pivoting to grow, (9) renegotiations of CUSMA negotiations and (10) AI deployment in M&A.

1) Uncertainty with Signs of Optimism

Uncertainty has been a persistent trend in much of 2025 but there is optimism on the horizon as we close out the year:

1. Although many market prognosticators entered 2025 anticipating a rebound in global M&A activity, encouraged by the prospect of easing interest rates and regulatory headwinds, the anticipated recovery failed to materialize in the mid‑market.
2. However, there has been a wave of mega-deals this year. Over time, many companies appear to have acclimated to the policy environment under the Trump administration. The "U.S. Is in Its Big M&A Era. Will It Last?" Podcast listed several mega-deals that took place during the summer including the acquisition of Norfolk Southern by Union Pacific for $70 billion, the acquisition of Discover by Capital One for $35 billion, and the purchase by Paramount of Skydance for $8 billion. Having adjusted to what is now regarded as the 'new normal,' corporate leaders have demonstrated a renewed appetite for deal-making, as CEOs increasingly sought to move off the sidelines and reenter the market.
3. As noted, while mega‑deals have reshaped the broader M&A landscape, the impact of this activity has not translated to the middle-market: policy uncertainty, tariff risks, and valuation gaps have contributed to an ongoing slump. Despite the uncertainty, the year's end offers a growing sense of optimism. While the latest developments on CUSMA are a concern, in many cases dealmakers now have greater clarity on tariffs and the evolving economic environment, enabling them to adequately price transactions and bring deals across the finish line. In Q3, private equity activity reflected this momentum, with 1,004 deals totaling more than $199 billion—representing a 3.6% increase in volume, with 35 more transactions than in Q2, and nearly $88 billion more in total deal value.

2) Interest Rate Projections

Interest rate uncertainty has weighed heavily on M&A activity, with actors reluctant to transact amid volatile rates and policy uncertainty. Higher rates have constrained leverage, making it harder for PE funds to engineer strong returns.

Now, with the US cutting rates and Canada signaling that "the range of possible outcomes is wider than usual," the outlook is shifting. Lower borrowing costs should act as fuel for M&A, particularly for leveraged buyouts and secondaries, where cheaper debt enables PE funds to put more leverage on deals and unlock greater potential rewards.

3) Canadian Lending Trends

Key sectors tied closely with first-line consumer expenditure (including hospitality, franchise/foodservice and consumer retail) are experiencing delinquency rates not seen since 2009, according to Equifax's annual Business Credit Trends and Insights Report. With small and medium-business lending seeking out fewer loans and growing balances on existing debt, refinancing and otherwise managing existing debt (instead of bringing on new risk) is becoming an increasingly popular trend in spite of successive interest rate cuts and managed inflation. Sectors showing notable double-digit, year-over-year increases in delinquencies in credit or supplier payments include agriculture, transportation/warehousing, real estate, finance/insurance and manufacturing. While there has been a small uptick in new lending compared to before the summer, risk appetite remains low.

From a private equity standpoint, banks appear to be maintaining a supportive stance toward leveraged financing, particularly for large and mid-market PE transactions in Canada. This patience around covenant enforcement is largely strategic, as lenders aim to preserve relationships amid a slowdown in exits over the past 18 months.

Leverage levels for new originations remain consistent with historical norms. However, existing transactions exhibit elevated leverage due to larger loan sizes supporting higher acquisition multiples, compounded by the impact of the economic slowdown on cash flow.

The private credit market is seeing growth and continued resilience in Canada. Private credit is finding ways to be creative and support Canadian business in a tumultuous economic environment where "Big Six" bank-credit has tightened-up. We expect this to continue into the first half of 2026.

4) Tariffs

The uncertainty from the imposition of tariffs has led to more cautious deal-making, with buyers scrutinizing target companies' exposure to international trade and tariff risks. At the same time, sellers are facing downward pressure on valuations due to reduced profitability and unpredictable future costs. As a result, deal structures are evolving to focus on creative deal-making and strategic planning to navigate the challenges posed by tariff-related volatility. The impact of increased tariffs on companies appears to be playing out as follows: (1) companies that are impacted minimally, where buyers can get comfortable with the risk and manage it accordingly; (2) companies that may benefit from tariff impacts, including optimizing supply chains and elimination of competition; and (3) companies that are significantly and adversely impacted by tariff developments.

Reactive government policies, such as targeted procurement initiatives and support for small and medium-sized enterprises (SMEs), aim to stabilize the business environment. Ideally, these measures will not only help companies maintain operations but also foster conditions conducive to M&A activity.

Sector-specific conditions are also shaping deal momentum. Active sectors include aviation and defence, professional services and business services. Certain sectors like the services industry are relatively insulated from the impact of tariffs and as a result, have been seeing strong deal momentum. Meanwhile sectors like the healthcare industry are optimistic as there has been a recent surge in deals relating to healthcare IT companies stemming from: several gem asset processes commanding high multiples, a flight to assets insulated from public policy, and the applicability of artificial intelligence. These shifts underscore how investors are recalibrating strategies to focus on resilience and innovation, favoring sectors that can withstand macro volatility while capturing long-term growth opportunities.

Collectively, these evolving trends point to a resilient and adaptive M&A landscape, where strategic innovation and sector strengths are paving the way for renewed growth despite global trade uncertainties.

The Importance of Foreign Investment Legislation

In Canada, the Investment Canada Act (ICA) has become a more prominent factor in deal execution, particularly for foreign buyers. National security reviews, once peripheral, are now central to transaction strategy. As a result, lawyers with ICA expertise and government relations professionals who understand the political landscape have become essential to navigating regulatory scrutiny and securing approvals. Their ability to anticipate political sensitivities and shape deal narratives is increasingly critical to getting transactions across the line. This topic is addressed in more detail by the leader of our Competition & Foreign Investment team, Davit Akman below.

5) Growth Projections – Pressure on PE Funds and Sellers

Seller Pressure

Many business owners are eager to realize the value they've built over decades, as a growing wave of long-time owners approach a pivotal transition. With nearly 75 per cent of business owners planning to exit from their companies within the next decade, more than $2-trillion in assets could soon change hands. Given the challenges in both business conditions and M&A, many owners are taking a more proactive approach to the sales process: engaging advisors much earlier in the process than the "standard", and completing vendor due diligence (formal or informal) to identify – and rectify – potential issues such as employment agreement gaps. More than ever, trusted advisors (including investment bankers, accountants/financial advisory firms and lawyers) play a critical role in helping owners prepare well in advance, from optimizing the business for sale to navigating complex tax and estate planning.

PE Fund Pressure

Private equity firms are facing heightened pressure to deliver successful exits to evidence strong Distributions to Paid-In Capital, particularly as many firms commence (or contemplate) their next fundraising round. Achieving this requires not only effective investment but also the timely realization of those investments through profitable exits. Nearly 40% of portfolio companies have now been held by private equity firms for five years or longer, signaling a growing backlog of potential exits.² At the same time, substantial private equity dry powder, estimated at over $1 trillion, remains on the sidelines, creating significant pressure to deploy.³

Adding to this momentum is the increasing pressure from limited partners (LPs) to generate liquidity. LPs, such as pension funds and family offices, are seeking returns and distributions, prompting general partners to accelerate exit activity and pursue deal opportunities more aggressively. This dynamic is helping to drive deal flow and shorten holding periods, even in a challenging macroeconomic environment.

The number of sale processes led by investment banks has increased across both Canada and the United States, suggesting a strong pipeline of deal activity through Q4 2025 and into Q1 2026.⁴

As a result, momentum must build, both sellers and PE firms have compelling reasons to get deals moving, and the outlook for activity is improving – including for Secondaries (next section).

6) Liquidity

Secondaries & Continuation Vehicles

While there is optimism for M&A activity to take an upward turn, during the slowdown in traditional dealmaking has taken, private equity has increasingly turned to secondaries solutions and continuation vehicles to fill the gap. Midmarket secondaries have thrived lately as volatility has hampered exit activity and PE fund distributions, creating opportunities for secondaries managers. According to Jefferies' Global Secondary Market Review, global secondary volume soared to US$103 billion in H1 2025—a 51 per cent increase over H1 2024. According to Evercore, overall secondaries deal flow was around USD 102bn in the first half, up around 41% year-on-year, with GP-led transactions contributing around 47% of the total.

On a similar note, the market for continuation vehicles is projected to more than quadruple, growing from $70 billion in 2024 to over $300 billion by 2034.

More Activity from Family Offices, Independent Sponsors and Search Funds

Family offices are becoming increasingly active in private markets, with ~42% of their global portfolios now allocated to private equity. Despite liquidity challenges from slower distributions, they are also investing more in private debt and often exert considerable influence as limited partners and direct investors due to the operational expertise of their principals. "Family offices have picked up a lot of the slack from institutions pulling back on PE investing," says Ash Lawrence, head of AGF Capital Partners. With their growing allocations and increased use of direct investment, family offices are emerging as a powerful force in driving midmarket M&A activity. Further, family offices were involved in about two per cent of global secondary transaction volume in both 2023 and 2024, even as overall market volume surged by 42 per cent year-over-year to US$162 billion in 2024.

The rise of independent sponsors and search funds in mid-market M&A in Canada is similarly creating: (a) more competition for deals and (b) more opportunities for exits. The most recent Stanford Search Fund Study (2024) noted a record number of 94 new search funds launched in 2023 across the US and Canada. Of the 524 search funds that concluded their search, 328 made an acquisition, and of those, 122 exited with a positive return, while 166 are operating.

Sponsor-to-Sponsor Exits

In Q1 2025, sponsor-to-sponsor exits accounted for 48% of US private equity deal volume (excluding public listings), highlighting their sustained role in the middle market—even as corporates dominated exit value with 68.3%.

7) Government Focus on Major Projects and Defence Could Mean Enhanced Opportunities in M&A

We've seen an increase in bullish attitudes towards debt and equity investment in mining and energy issuers following the results of the 2025 Canadian Federal election. With the Federal government prioritizing Canada's role as a leading global supplier of critical minerals and energy, investor appetite for both debt and equity financing in these sectors has intensified. The launch of the Major Projects Office (MPO), designed to fast-track approvals and eliminate regulatory bottlenecks for high-impact infrastructure, signals a decisive shift toward accelerating resource development. The MPO's initial slate includes major initiatives in liquefied natural gas, nuclear energy, and copper mining, underscoring Ottawa's commitment to expanding traditional and strategic energy capacity. Combined with potential new incentives and clearer pathways to project development, these moves are expected to catalyze capital flows and bolster public and private financing across Canada's mining and energy landscape. In addition to this development, Prime Minister Mark Carney and Minister of National Defence David McGuinty announced Canada's plan to increase and accelerate its investment in defence including a cash increase of $9 billion in defence investment this fiscal year (2025-26). This was coupled with Canada's intention to meet defence spending targets of 2% of GDP by the end of said fiscal year. This surge in funding will accelerate procurement across land, sea, air, and cyber domains, creating a wave of opportunities for contractors, suppliers, and technology firms – as a result, there is likely to be significant M&A activity in these industries.

Procurement:

For more details, please see the recent procurement policy articles here: Amidst Trade Tensions, Canada Fights Back with New "Reciprocal" Procurement Policy for Federal Government Contracts."

8) Pivoting to Grow: Canadian Agencies Respond to Chilling Effect of Tariffs on SMEs

Particularly among small and medium-sized enterprises, the imposition (or threat) of US tariffs has led to a reduction in demand for Canadian export goods from accounts south of the border. Observable is an increased reliance on government or industry-backed interim financing solutions. In response, the Government of Canada has launched a $5 billion Strategic Response Fund to help tariff-impacted companies retool operations, retrain employees, and diversify markets. This replaces earlier initiatives such as the Business Development Bank of Canada's Pivot to Grow program, which has now expanded its SME loan ceiling from $2 million to $5 million. Additionally, the Regional Tariff Response Initiative has been more than doubled, from $450 million to $1 billion, and is being delivered through Canada's regional development agencies to support SMEs across sectors including agriculture, seafood, and manufacturing. For Atlantic Canada specifically, $80 million has been earmarked to help businesses modernize and expand into new markets. These measures are part of a broader industrial strategy that includes a new "Buy Canadian" procurement policy and targeted support for strategic sectors such as steel and aluminum, which continue to face 50% US tariffs.

9) Renegotiation of CUSMA

Canada-United States-Mexico Agreement (CUSMA) entered into force on July 1, 2020. It governs trade between Canada, the United States, and Mexico.

CUSMA includes a built-in "review and term extension" mechanism in Article 34.7. CUSMA will expire automatically after 16 years (in 2036) unless the parties agree to extend it. To prevent expiry, a formal joint review by the Free Trade Commission must occur in year six after implementation, which will be 2026.

The Review must be completed by July 1, 2026. Upon completion of the Review, each country must confirm in writing whether it wishes to extend CUSMA for another 16 years, until 2042. If all three parties agree, the agreement is extended, and the next review will be scheduled for 2032. If not, then CUSMA remains in force, but annual joint reviews must take place until the agreement's scheduled expiry in 2036. At any of these annual reviews, the parties may still agree to extend the agreement. If no extension is agreed upon by 2036, CUSMA will terminate.

Canada and US Consultations

Canada has initiated consultations with Canadians on the future of CUSMA. Global Affairs Canada accepted submissions until November 3, 2025. Similarly, the Office of the US Trade Representative sought public comments on the operation of the Agreement.

The focus for solicited public comments included, but was not limited to:

• Any aspect of the operation or implementation of the CUSMCA;
• Any issues of compliance with the Agreement;
• Recommendations for specific actions that USTR should propose ahead of the Joint Review;
• Factors affecting the investment climate in North America and in the territories of each Party, as well as the effectiveness of the USMCA in promoting investment that strengthens US competitiveness, productivity, and technological leadership; and
• Strategies for strengthening North American economic security and competitiveness, including collaborative work under the Competitiveness Committee, and cooperation on issues related to non-market policies and practices of other countries.

To view the Federal Register Notice, click here.

10) AI Deployment in M&A

In M&A, artificial intelligence is playing a pivotal role in both strategic evaluation and operational execution. Private equity firms are increasingly focused on "conducting detailed AI diligence when evaluating a particular company for acquisition, to understand AI's role and potential impact on its future value creation. In this process, firms can assess the amount of knowledge workers (potentially affected by genAI), the possible automation or augmentation of the workforce, the competitive landscape as related to AI and a detailed financial assessment considering cost implications and implementation readiness."

Buyers expect demonstrable value from AI initiatives, and from a legal perspective, it is important to evaluate software dependencies such as open-source tools and assess intellectual property risks including potential copyright issues.

AI also enhances the diligence process itself with PE firms and advisors alike using it for contract analysis, document review, error detection, and organizing closing documents and signature pages. Meanwhile, some firms deploy proprietary tools, such as custom-built agents that generate multilingual summaries and translations in preferred formats, streamlining deal execution with greater speed and precision.

Beware of the AI Trap

PE firms should avoid the common trap of unfocused AI experimentation. While innovation requires testing, many firms launch numerous AI pilots without a clear strategy, often to appear cutting-edge rather than to solve real business problems. This leads to fragmented efforts that rarely provide scale or deliver lasting value.

Internal incentives that emphasis volume over impact often leads to scattered efforts that fail to scale. Compounding the issue are structural challenges within firms, such as fragmented data systems, siloed departments, and a general reluctance to embrace change, that hinder the integration of AI into core operations.

Real opportunity comes from aligning AI with core operations and customer needs, using frameworks like IFD to assess scalability based on problem intensity, frequency, and reach. To scale AI effectively, firms should empower a small, cross-functional team to lead high-impact initiatives, build strong data foundations, and integrate AI enterprise-wide, prioritizing focus and strategic alignment over scattered pilots.

Legal Trends

Themes

Three primary themes will continue to dominate the market in H2 2025 and into 2026 – 1) creativity, 2) increased importance of the 'regulatory' component, and 3) managing volatility and uncertainty.

1) Creativity

Diligence

Length of Due Diligence

In today's M&A market, the margin of error is zero and as a result dealmakers are rewarded not only for identifying potential but also realizing it through disciplined, detail-oriented execution and avoiding unnecessary risk in a VUCA environment. As a result, diligence periods are running longer and often include multiple updates on deliverables like Quality of Earnings reports. In short, Buyers have very little patience for "surprises" and don't want to miss anything material so attention to detail is a priority.

The Private Equity team at Cassels ran an internal survey regarding legal trends in the first two quarters of 2025. Most respondents noted that diligence periods are taking longer than usual, with the typical period between LOI signature and closing being 3-4 months (as compared to 30-60 days). This extended timeline reflects a heightened emphasis on uncovering potential liabilities early, and ensuring that deal terms are aligned with the realities of an increasingly complex and cautious transactional landscape.

Structuring

Escrow

Based on data sourced from the 2025 What's Market study, Spring 2025 GF Data study⁵, and the Cassels Summer 2025 survey, there seems to be an increase in the number of deals that include escrow arrangements. This supports the increased level of caution and enhanced focus on risk mitigation, particularly within mid-market transactions. In 2024, What's Market reported that 23% of deals valued under $100 million and 65% of deals valued over $100 million incorporated an escrow or holdback. An upward trend in escrow usage emerged in 2025, with most of the respondents from the Cassels Private Equity team indicating that between 51% and 75% of deals in the first half of the year included an escrow arrangement.

GF Data further highlights that while the average escrow size across all deals in 2024 remained steady at 4.9% of total enterprise value (TEV), smaller transactions carried notably higher escrow percentages: 7% for deals in the $10–25 million EV range, compared to 3.9% for $25–50 million, 2.8% for $50–100 million, and 1.2% for $100–500 million. These figures suggest that buyers are more cautious on escrow protection in lower-value transactions, where the perceived relative risk may be higher.

Earn-outs

To counteract the growing risks posed by US tariffs and domestic regulatory scrutiny, dealmakers in today's buyer friendly environment are increasingly turning to more bespoke transaction structures such as increased use of earn-outs to navigate uncertainty and better align long term value expectations. Notably, earn-outs are being used not just to bridge valuation gaps, but also as a creative deal structure to tailor incentives, manage risk, and accommodate divergent forecasts between buyers and sellers . As noted by GF Data⁶, smaller deals valued between $10 million and $25 million utilized SFE (seller financing and earnouts) more frequently than larger scale deals, with incidence reaching 54.8% last year compared to 49.1% in the prior year. What's Market reported that earn-outs also continued to be most common in smaller deals, with 37% of the deals valued at $25 million or less over the last 3 years including an earn-out. Respondents of the Cassels Survey indicated that while less than 25% of the deals in the first half of 2025 included an earn-out, the deals that did include earn-outs most commonly included an earn-out period of over 3 years. This represents a longer average earn-out term than usual (typically, a one to three year term), suggesting that buyers are successfully advocating for longer periods in order to confirm the consistency of the performance of the business. At the same time, a longer earn-out period also means that a buyer is subject to the covenants related to its operation of the business for a longer term.

Indemnification

Recent indemnity trends reveal a shifting landscape in how deal parties allocate risk and structure post-close protections, particularly in the mid-market. GF Data⁷, which offers granular insights across deal sizes, reports an average indemnity cap of 19.2% in 2024. Notably, deals that include representation and warranty insurance show significantly higher caps, averaging 34%, compared to just 15.6% in uninsured transactions. Recent deal activity highlighted in the Cassels 2025 Survey shows indemnity caps for standard representations and warranties frequently exceeding 50% of the purchase price (particularly for lower mid-market transactions). Similarly, the 2025 What's Market Study, found that the median indemnity cap in Share Purchase Agreements increased between 2023 and 2024 and the recent ABA 2025 US Private Target M&A Deal Points Study shows that both the mean and the median indemnity cap for deals without RWI referenced increased from 2022/23 to 2024/25. Individual deal structures are becoming more polarized, shaped by factors such as deal size, insurance usage, and buyer leverage.

Representation and Warranty Insurance

In the representation and warranty insurance (RWI) market, pricing reached near multi‑year lows in 2024 but began to edge upward in the second half of the year and into 2025 at a modest pace. As noted, deal activity has been sporadic, with tariff uncertainty dampening momentum, while insurers have focused on protecting profitability amid a notable rise in paid claims. Policy coverage remains broad and buyer‑friendly, and retention levels are historically low, averaging 0.65% of enterprise value in FY24, alongside a growing prevalence of "no seller indemnity" or walkaway structures, now present in roughly 40% of deals.⁸ We have also seen RWI insurers working with buyers pursuing alternative deal structures (such as staged investments) in order to provide coverage, demonstrating the willingness of RWI insurers to adapt the RWI product in order to meet deal participants' desired outcomes.

2) The Importance of the Regulatory Component

One of the biggest legal trends in Canadian Private Equity M&A in 2025 is the acceleration of the importance of regulatory input and the assessment of other specific legal areas.

With an increased importance of privacy laws, franchise laws, tariff updates and more restrictive foreign investment rules, there are many areas of law that require specific expertise and enhanced focus in order to get deals done. For example, while privacy has been a relevant area for diligence and deal structure for many years, recent developments in AI, data governance, and cybersecurity add new, complex elements to many transactions. Additionally, franchise law remains highly relevant due to the consistent volume of transactions over the years, particularly as interest grows in acquiring and developing attractive franchise systems.

Similarily, regulatory diligence and deal considerations are more important than ever, particularly as we are seeing interest from PE buyers in areas that have a regulatory overlay (i.e. defense, insurance, healthcare, financial services, energy (datacentres) etc.).

Tariffs

Tariff exposure remains one of the most difficult risks to quantify in M&A due to its fluid and unpredictable nature. Tariff regimes can shift quickly with policy changes, trade negotiations, or geopolitical developments, making it challenging for dealmakers to pin down where things stand at any given time. This volatility underscores the need for enhanced trade diligence, not just assessing current tariffs, but evaluating the full spectrum of potential tariff scenarios that could impact the target business in the short to mid term. Understanding these risks early and comprehensively is critical to structuring deals that can withstand policy swings and protect long-term value.

Foreign Investment Rules

As noted by our Competition and ICA Partner Davit Akman below, recent changes to the ICA mean that potential acquirers of a Canadian business need to be more alert to risks such as a challenge to the deal based on national defence and/or economic security criteria.

Franchise

Recent franchise transactions in the M&A sector have underscored a critical reality: failure to assess the potential application of franchise laws early in the deal process can derail even the most promising transactions. We are seeing more deals paused, and in some cases terminated, because a party minimized the significance of franchise law implications until late-stage diligence. The sooner that Franchise law experts are consulted, the lower the risk that material changes to pricing, deal terms and/or deal cadence will be adversely impacted by the findings.

The process for conducting due diligence on a franchise system is much more efficient where sellers appreciate the nuances of their franchise systems (including a good understanding of precisely what prospective buyers (and their counsel) will be looking for). This allows sellers to maintain and provide their records and paperwork in accordance with that understanding. This form of orchestrated and organized approach reduces the associated professional fees with performing the necessary due diligence, and can also increase the purchase price for the franchise system (as issues or omissions in the records and paperwork can lead to liabilities in the system that directly impact its value).

The Everline Coatings and Services Completes Sale to Red Iron Group | Cassels.com deal illustrates the importance, and complexities, of Franchise due diligence.

Please see here for more information on tips to prepare your franchise system for acquisition.

3) Managing Volatility and Uncertainty

Deals Must Get Done

According to insights from a recent WSJ podcast, dealmakers in today's environment are increasingly opting to push transactions forward, even amid uncertainty. Rather than waiting for perfect conditions, many are choosing to get deals done by proactively managing risk through a combination of creative structuring and strategic foresight. This includes deploying enhanced due diligence processes, negotiating earn-outs to bridge valuation gaps, and conducting thorough assessments of external variables such as potential tariffs and regulatory shifts. These tactics reflect a pragmatic mindset, one that prioritizes momentum and adaptability over hesitation, allowing dealmakers to navigate complex landscapes while still protecting value and mitigating downside exposure.

Litigation is Active

In today's volatile and challenging economic climate, commercial litigation continues to thrive with litigation practice demand growing by 2% in the second quarter of 2025, according to the Law Firm Financial Index. Disputes arising from real estate transactions and breach of contract claims are particularly active, reflecting the "acyclical" nature of litigation where more uncertainty may lead to more disputes. Representations related to capitalization, in particular, have been a significant source of post-closing claims.⁹ This trend highlights how litigation often accelerates when the broader market is under pressure, reflecting its resilience and continued relevance in times of economic uncertainty.

Competition Act and Investment Canada Act Updates

Under Canada's Competition Act, where both the Transaction Size Threshold (C$93 million) and the Party Size Threshold ($400 million) are met, prior to closing the parties to a merger or acquisition must: (a) file a formal merger notification with the Competition Bureau and observe the statutory waiting period(s); (b) obtain an advance ruling certificate or (c) obtain a waiver of the statutory waiting period and a no action letter. The manner in which these thresholds are determined and applied varies depending on the nature/structure of the transaction. The filing fee is currently C$88,690.45.

Competition Act developments in 2025 include:

• Recently issued draft Merger Enforcement Guidelines (MEGs)
  • MEGs had not been updated since 2011
  • Consistent with structural presumptions introduced in 2024, the long-standing 35% "safe harbour" threshold is gone
    • Historically, mergers resulting in combined share of between 30% and 35% were (generally) presumed competitively benign; they are now presumed anti-competitive
    • Market share evidence will be critical in all cases (including where parties have de minimis market shares); the Draft MEGs indicate that the more the structural presumptions are exceeded, the greater the need for persuasive evidence to refute the presumption of anti-competitive harm
  • Draft MEGs also reflect:
    • The Bureau's increased focus on non-price elements of competition (e.g., quality), dynamic competition (i.e., competitive impact of a transaction on innovation) and the potential anti-competitive effects of vertical and conglomerate mergers
    • The vanishing importance of pro-competitive efficiencies since the repeal of the efficiencies defence in 2023
  • For many mergers, the Bureau's review will be more involved and will take longer than before
  • Public comment period runs until February 11, 2026

Under the Investment Canada Act (ICA), any non-Canadian acquiring control of a Canadian business or establishing a new one must file either a notification within 30 days after closing (Notifiable Transactions) or, if certain financial thresholds are met, a pre-closing application for "net benefit" review (Reviewable Transactions).

Pre-closing "net benefit" reviews require non-Canadian investors to demonstrate that the proposed investment will benefit Canada through legally binding financial commitments and other undertakings.

The ICA includes a national security regime. Any level of investment in a Canadian business or entity is subject to that regime. The decision to initiate a national security review (NSR) is purely discretionary but the Canadian government has issued non-binding administrative guidelines — Guidelines on the National Security Review of Investments (the Guidelines) – outlining the factors which increase the likelihood of an NSR. Those factors include:

• the business activities of the Canadian business (e.g., businesses involved in critical minerals or sensitive technology areas are at higher risk of an NSR);
• the nationality of the "ultimate controller" of the non-Canadian investor;
• whether the investor or its ultimate controller are state-owned enterprises (SOEs) or private investors considered to be closely tied to or subject to direction from foreign governments (e.g., Chinese or Russian investors);
• whether there are any Chinese (including Hong Kong), Russian, Iranian or North Korean individuals or entities directly or indirectly participating in the investment, whether as investors, shareholders, lenders or otherwise; and
• the potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada, including consideration of whether the investment provides access to information not in the public domain related to the research, design or manufacture of sensitive technologies.

Special "net benefit" review and national security policies apply to investments involving Russian nationals and those in the critical mineral and digital media sectors.

ICA developments in 2025 include:

• increases in the thresholds for Reviewable Transactions to C$2.079 billion for trade agreement investors (e.g., US, EU member states, Japan), C$1.386 billion for World Trade Organization (WTO) member investors, and C$551 million in asset value for state-owned or influenced enterprises from WTO countries; and
• updates to the Guidelines to recognize the importance of economic security in assessments of Canada's national security through the addition of "economic security" (i.e., whether the potential of the investment to undermine Canada's economic security through the enhanced integration of the Canadian business with the economy of a foreign state, including the United State) as a factor in determining whether a proposed investment could be injurious to Canadian national security and the incorporation into the Guidelines of Canada's Sensitive Technology List (STL). The technology areas in the STL capture key areas with national security implications (i.e., technologies (including intangible technology/know-how) that are emerging or have novel applications or capabilities, and those that can uplift adversarial advantage, the transfer of which could cause injury to Canada's national security and defence), including advanced digital infrastructure technology, advanced weapons, life science technology and AI technology.

Looking ahead, significant amendments to the ICA are expected to come into effect by mid-2026; namely:

• a new pre-implementation notification obligation applicable to otherwise Notifiable Transactions for certain investments in Canadian businesses and entities carrying on prescribed business activities (e.g., sensitive technologies, such as AI);
• a new ministerial power to order a net benefit review of any SOE investment unless the non-Canadian is a trade agreement investor;
• a presumption that investments involving non-Canadians who have been convicted of an act of corruption in any jurisdiction could be injurious to national security; and
• updated penalties for contraventions of the ICA, including the pre-implementation notification obligation.

These changes underscore a broader policy shift toward safeguarding strategic assets and industries and tightening oversight of foreign influence in the Canadian economy.

National security concerns will continue to be a top priority in the Canadian government's screening of foreign investments. The Carney government's election platform emphasized the need to "Safeguard our economy and our values and protect Canada from attempts to buy up our businesses our core public health care, IP, critical minerals and other resources by strengthening the Investment Canada Act".

In this environment, successful navigation of the ICA requires more than applying statutory thresholds; rather it demands a clear understanding of and the experience and credibility to navigate the regulatory expectations and the political context in which foreign investment and national security review decisions are made. In the words of the Globe and Mail, "The new age power players are lawyers who know the ins and outs of the Investment Canada Act, and government relations and communications professionals who appreciate what politicians need to score points with voters."

Ultimately, overcoming national security hurdles is not just a legal matter – it's a strategic one.

Footnotes

1. Jen Muller, "International M&A Market Update" (Presentation delivered at the American Bar Association Business Law Fall Meeting, Toronto, September 20, 2025) [unpublished].; Jen Muller & Matt Kavney, "M&A Market Update" (Presentation delivered at the American Bar Association Business Law Fall Meeting, Toronto, September 20, 2025) [unpublished].

2. Ibid.

3. Ibid.

4. Ibid.

5. GF Data, "2025 Key Deal Terms Report" (14 March 2025), online (pdf): < Database – GF Data >.

6. GF Data, "2025 Key Deal Terms Report" (14 March 2025), online (pdf): < Database – GF Data >.

7. GF Data, "2025 Key Deal Terms Report" (14 March 2025), online (pdf): < Database – GF Data >.

8. Jordanna Cytrynbaum, Brenda C. Swick, Jake Bullen et al, "Beyond the New Normal: Navigating The Seismic Changes In the Laws Of Trade, Sanctions, Competition and M&A" (Presentation delivered at the Cross-Cassels Check-In, Vancouver, 17 June 2005) [unpublished].

9. Anthony Dragone, Jennifer Drake, Len Loewith, "Enhancing Due Diligence and Minimizing Risk: Key R&W Claims Insights from Industry Experts" (Presentation delivered at the American Bar Association Business Law Fall Meeting, Toronto, 20 September 2025) [unpublished].

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