M&A and Capital Markets Newsletter Q3 2025

How generative AI is driving deal value and integration

Generative AI (GenAI) is revolutionizing M&A on two fronts: It’s fueling deal flow as a sought-after capability and transforming how deals get done. Acquirers are buying AI-native capabilities, data assets, and vertical platforms. They’re also using GenAI to compress timelines from sourcing through integration. Companies that embed AI into their M&A playbooks over the next five years will move faster, underwrite value with more confidence, and integrate with fewer surprises. 

GenAI has shifted from curiosity to core capability. Rather than building from scratch, acquirers are increasingly purchasing:

• AI-powered SaaS that streamlines operations (e.g., support, compliance, finance, sales productivity).
• Sector platforms (health, industrials, financial services, public sector) with workflows tuned to domain data.
• Proprietary datasets and data rights that strengthen moats and improve model accuracy.

Leading deal teams are deploying GenAI across the lifecycle—not just in sourcing and diligence, but through Day 1 and beyond. Key AI-driven efficiencies in the transaction process include:

• Sourcing and screening—Intelligent crawlers and co-pilots surface targets that match strategy narratives, buyer fit, and adjacency maps. There is also the automated normalization of financials/operating KPIs for an apples-to-apples comparison.
• Diligence at speed and scale—Rapid review of contracts, code, policies, and controls; instant precedent and internal knowledge retrieval; and dynamic regulatory mapping for multi-jurisdictional deals.
• Documentation and negotiations—Drafting assistants for NDAs, SPAs, disclosure schedules, and board materials with human-in-the-loop approval. Scenario memos can also be drafted that tie synergy cases to risks, dependencies, and cost to serve.

GenAI has moved well beyond sourcing, screening, and diligence. Early adopters are now applying it to integration, carve-out planning, and program management—turning AI from a point tool into an operating system for M&A. Over the next 12 months, expect leaders to:

• Draft integration playbooks and transition service agreements in under 20% of the time previously required—accelerating Day 1 readiness and improving first-draft quality.
• Tap governed, company-specific data to size cost and revenue synergies more precisely and build evidence-based value-creation plans anchored in historical performance.

GenAI is set to redefine the M&A playbook. There’s still room for late movers, but the window is narrowing as competitors scale AI-enabled sourcing, diligence, and integration. Mastery of GenAI will be key to winning transformative deals and safeguarding long-term value.

Source: Dentons - Deals, data and deep learning: Navigating generative AI in cross-border M&A

What Mark Carney’s economic agenda means for capital markets and M&A

Canada’s new government under Prime Minister Mark Carney has staked out a two-track economic agenda: Tear down internal trade barriers at home and diversify supply chains and export markets abroad. For dealmakers and public market investors, the implications are immediate: Bigger national markets for scale plays, new cross-border corridors beyond the U.S., and a policy push that favours productivity-enhancing consolidation and capital formation. 

Knocking down interprovincial barriers (standards, licensing, procurement rules) expands the effective home market. That makes coast-to-coast roll-ups more valuable in services, transportation, healthcare adjacencies, and regulated utilities because national scale synergies become real, not theoretical.

A push to diversify trade beyond the U.S. should spur outbound and inbound deals with Japan, South Korea, ASEAN, and Europe. More JVs and minority stakes can be expected at first. And full acquisitions could come into play as supply chain ties harden.

This may result in the following effects on deal flow and pricing:

• an upward bias in volumes is expected over the next 12 to24 months as PE and strategics restart paused national roll-ups and cross-border activity diversifies beyond the U.S.;
• valuations should expand where integration friction falls (e.g., credential/permit portability) while national security sensitive assets (critical minerals, data infrastructure) may trade with diligence/approval discounts; and
• financing will skew toward larger TSX floats and follow-ons for pan-Canadian theses, with private credit remaining active alongside bank syndicates—especially for infrastructure-adjacent deals.

And the game plan for deal terms should be:

• to underwrite national synergies explicitly and quantify savings/revenue from harmonized rules and add contingencies for uneven provincial uptake;
• build a non-U.S. pipeline by mapping priority Asian/European corridors and starting with partnerships/minorities that can scale to control;
• engage early on Investment Canada and national security angles; and
• prioritize sectors that benefit most from reduced friction such as logistics, ports, grid/clean power, critical minerals, agri-food, and productivity software.

If the government delivers on a single, more seamless home market while opening additional trade lanes, Canada’s M&A will tilt toward larger, cleaner, and more cross-border transactions. The winners will price policy changes into their models early, move quickly where friction falls, and structure around national security hot spots.

Sector-specific M&A trends

The North American M&A landscape in Q2 has been marked by pronounced sector-specific fragmentation, reflecting divergent economic pressures, regulatory shifts, and strategic priorities across industries. While overall deal volume has remained relatively stable following a rebound in 2024, the distribution of activity has become increasingly uneven, with certain sectors accelerating while others retreat.

Technology and healthcare have continued to lead M&A activity, driven by innovation, digital transformation, and the pursuit of scale. In tech, mid-market deals have dominated as large-cap transactions face valuation pressures and regulatory scrutiny. AI integration, cybersecurity, and cloud infrastructure remain key drivers, with firms seeking to consolidate capabilities and expand service offerings. Healthcare, particularly in biotech and digital health, has seen sustained interest due to demographic trends and ongoing demand for innovation in patient care and data analytics.

Conversely, industrials and consumer goods have experienced a slowdown. Elevated interest rates and persistent supply chain disruptions have dampened investor appetite, especially for capital-intensive businesses. The imposition of sweeping U.S. tariffs has further complicated cross-border supply chains, prompting many firms to delay or reconsider M&A plans. Several Canadian manufacturers have paused U.S. acquisition talks amid uncertainty over tariff duration and enforcement.

Energy M&A is increasingly split between legacy and emerging sectors. Traditional oil and gas deals have slowed amid regulatory hurdles and sustainability scrutiny, making them less attractive to investors. Meanwhile, renewables and clean tech are drawing strong interest, fueled by sustainability goals and long-term growth potential. This divergence reflects a broader shift in capital allocation as investors prioritize resilience and alignment with the energy transition.

Private equity (PE) activity has also mirrored this fragmentation. While PE firms remain active in tech and healthcare, they have become more selective in sectors exposed to geopolitical risk or regulatory volatility. The result is a more cautious, targeted approach to dealmaking, with a focus on value creation and operational synergies.

Overall, Q2 has underscored a new era of sector-specific fragmentation in North American M&A. Dealmakers are increasingly tailoring strategies to sector dynamics, regulatory landscapes, and macroeconomic conditions—signaling a shift from broad-based activity to precision-driven investment.

U.S. deregulation and the impact on cross-border M&A

U.S. deregulation in 2025 has played a pivotal role in reshaping the M&A environment between Canada and the United States. While Canadian firms have found new opportunities in the U.S. market, American investors have also shown renewed interest in Canadian assets, particularly in sectors aligned with long-term growth and regulatory stability.

In the United States, regulatory rollbacks in infrastructure, energy, and industrial services have reduced compliance costs and improved short-term profitability, making American firms more attractive acquisition targets. Agencies such as the Federal Energy Regulatory Commission , the Environmental Protection Agency , and the Department of the Treasury have been instrumental in implementing these changes. This has encouraged Canadian firms to pursue U.S. acquisitions as a means of scaling operations, diversifying revenue streams, and mitigating exposure to trade-related risks.

However, the flow of capital has not been one-sided. U.S. investors, including private equity and institutional funds, have increasingly targeted Canadian companies, particularly in sectors such as renewable energy, technology, and infrastructure. Canada’s stable regulatory environment, favourable sustainability profile, and access to critical resources have made it an appealing destination for American capital. This trend reflects a broader strategic recalibration, with U.S. firms seeking to hedge against domestic policy volatility by investing in more predictable jurisdictions.

The imposition of new U.S. tariffs in2025 has further complicated the cross-border landscape. In response, Canadian firms have accelerated American acquisitions to localize production and maintain market access. At the same time, some U.S. firms have explored Canadian acquisitions to secure upstream supply chains and reduce exposure to tariff-related disruptions.

Despite the deregulatory momentum, oversight remains a critical factor. The Committee on Foreign Investment in the United States  continues to scrutinize deals in sensitive sectors, particularly those involving data, infrastructure, or national security. This has led to a more cautious approach on both sides of the border, with dealmakers placing greater emphasis on regulatory due diligence and long-term strategic alignment.

Overall, the cross-border M&A landscape in 2025 reflects a complex interplay of deregulation, protectionism, and strategic diversification. Both Canadian and U.S. firms are actively pursuing opportunities, but with a heightened awareness of regulatory risk, valuation pressures, and geopolitical uncertainty.

How Canada–U.S. trade tensions are reshaping M&A strategy

The recent volley of tariff announcements between Canada and the United States has added a new layer of complexity to the M&A landscape. As dealmakers work through increased market volatility and geopolitical unpredictability, both buyers and sellers are reassessing how to navigate risks and uncover opportunities.

With heightened uncertainty, we’re seeing more cautious dealmaking and a shift toward longer diligence cycles, enhanced contingency planning, and a greater preference for domestic transactions. Sellers are under pressure to weather-proof their operations while buyers must consider new variables to insulate themselves from future regulatory and trade shocks.

At the same time, mid-sized firms with healthy balance sheets are increasingly eyeing this climate as an opportunity to acquire smaller, strategic players. For early-stage businesses lacking scale but hungry for growth, acquisitions may offer a shortcut to market access, capabilities, and talent.

Despite the turbulence, a few macro factors could support M&A activity in Canada:

• Interest rate relief—The Bank of Canada’s two 25-basis-point cuts in Q1 lowers the cost of capital and supports debt-financed deals.
• Favourable currency trends—A weaker loonie enables companies to pay domestic expenses in Canadian dollars while collecting revenue in U.S. dollars, creating a potential margin advantage for exporters.

If you're considering selling—particularly if most of your customers are U.S.-based—you’ll need to proactively address perceived risks. Here’s how:

• Model the financial impact of trade uncertainty on your P&L and balance sheet, including debt service capacity.
• Demonstrate resilience through long-term contracts, diversified customers, and supply chain flexibility.
• Pursue geographic diversification—both internationally and interprovincially—to reduce dependency on any single market.
• Build for the long term—Buyers are still looking for quality assets. A well-run, forward-thinking business is always in demand.

If you’re actively pursuing acquisitions, consider risk-sharing mechanisms such as earnouts tied to future performance and larger vendor notes or holdbacks.

In parallel, apply more rigorous diligence by stress testing revenue and margins under different trade scenarios, assessing supply chain vulnerabilities and alternative sourcing options, and modelling worst-case outcomes and test assumptions in your financial forecasts.

Economic uncertainty and the implications for M&A activity

As we move through 2025, the global economy finds itself navigating a complex web of challenges—slowing growth, persistent inflation in some markets, geopolitical tensions, and shifting central bank policies. With fears of a potential recession looming large in developed economies, the ripple effect is being felt across the M&A landscape.

After a record-breaking run in 2021 and a moderate slowdown in 2022–23, dealmaking activity has seen a more pronounced dip since mid-2024. Uncertainty around interest rates, energy prices, and supply chain vulnerabilities has caused dealmakers to reassess valuations and tighten their diligence.

Key trends include:

• Slower deal velocity—Longer due diligence cycles, increased risk aversion, and board hesitations are elongating transaction timelines.
• Valuation gaps—Buyers are pricing in recessionary risks while sellers are holding onto pre-slowdown valuation expectations.
• Focus on strategic fit—There’s a greater emphasis on deals that offer immediate synergies or access to resilient revenue streams, such as recurring SaaS income or healthcare assets.

Should a technical recession materialize in Canada, the U.S., or the EU, we can expect sharper adjustments in M&A dynamics such as:

• Distressed and opportunistic deals—Struggling sectors like retail and tech may face forced sales, attracting private equity buyers seeking high-risk bargains.
• Core industry consolidation—Weaker players in essential sectors like healthcare and energy may be absorbed as firms pursue market dominance.
• Focus on efficiency over growth—Cost-cutting and synergy-driven deals will gain favour over growth-based acquisitions.
• Rising regulatory and geopolitical friction—Cross-border deals in sensitive industries may decline due to increased scrutiny and protectionist policies.

In this climate, sellers must stress test their financials against conservative scenarios and be prepared with clean data rooms and audited statements. Flexibility is key. Earnouts, contingent payments, and partial equity rollovers can help bridge valuation gaps and keep deals alive.

On the buy side, success lies in focus and readiness. Buyers should double down on sectors where they have operational expertise and a clear post-merger integration strategy. With traditional debt financing tightening, exploring private credit or creative deal structures is crucial. And while downturns carry risk, they also offer strategic upside if backed by thorough diligence and thoughtful planning.

Source

M&A activity slows as tariffs and uncertainty weigh on deals

BoC rate cuts and the evolving M&A market

In June 2024, the BoC initiated a monetary easing cycle after its policy rate peaked at 5%—a 23-year high. Since then, rates have decreased by 200 basis points, reflecting a shift in strategy as inflationary pressures eased.

January’s 25-basis-point cut was in line with market expectations. However, the central bank’s messaging extended beyond domestic economic conditions. Instead, it placed significant emphasis on external risks—particularly the potential disruption caused by U.S. trade tariffs. The rate cut was deemed necessary to sustain economic momentum following the restoration of price stability. Yet, with geopolitical uncertainties mounting, policymakers remain cautious about future easing measures.

Despite several headwinds, the Canadian M&A landscape looks promising in 2025 due to factors such as lower inflation, stabilized interest rates, and a continued surplus of institutional capital. However, the impact of rate cuts differs for companies looking to sell and those looking to buy.

Lower interest rates can drive higher valuations and expand the pool of potential buyers. As borrowing costs decline, acquisitions become more attractive, intensifying demand for high-quality targets. Companies with significant debt burdens benefit from reduced interest expenses, improving their financial position and making them more appealing to buyers. This combination of factors enhances sellers' negotiation power, allowing them to command better deal terms and maximize valuation multiples.

While lower borrowing costs present an opportunity for buyers to secure favourable financing, the increased competition can drive up acquisition prices. The influx of private equity and strategic buyers could lead to bidding wars, making valuations more aggressive. As a result, buyers must exercise discipline in their acquisition strategies, ensuring they conduct thorough due diligence and avoid overpaying in a highly competitive market.

This year is shaping up to be one of both opportunity and caution. For sellers, financial preparedness and strategic positioning will be key to maximizing valuations. Buyers, on the other hand, must remain disciplined in their acquisition strategies, ensuring they don’t overpay in an increasingly competitive environment. 

While the BoC is expected to continue easing monetary policy, external uncertainties—especially trade disruptions—introduce a layer of unpredictability. Decision makers are required to adopt the balanced approach to leverage opportunities while reducing risks. Companies that stay well informed, adaptable, and proactive will be positioned to capitalize on the evolving market conditions.

Trade wars and deal flow

The recent announcement by U.S. President Donald Trump to impose a 25% tariff on goods from Canada and Mexico—along with retaliatory measures—has the potential to significantly disrupt both the global and Canadian economies. 

According to Statistics Canada, the total value of Canadian exports to the United States exceeded $594 billion in 2023. More than 43% of this trade came from six key industries: oil and gas extraction, oil and gas refining, auto manufacturing, aluminum production and processing, aerospace, and crop and animal production.

The rising trade tensions and uncertainty surrounding tariffs create significant headwinds for cross-border M&A activity.

These uncertainties may cause dealmakers to take a more cautious approach. Sellers may defer transactions, while prospective buyers may demand longer due diligence periods and enhanced protections, such as:

• Earnouts and contingent payments to mitigate risk exposure.
• Changes to material adverse effect (MAE) clauses to address potential tariff-driven impacts.
• Expanded indemnities to ensure risk-sharing in volatile trade conditions.

Despite these challenges, certain industries will remain resilient. Private companies with service-based models, low exposure to cross-border supply chain disruptions, or strong pricing power are less likely to be materially impacted. Additionally, in the long term, a trade war could catalyze strategic cross-border acquisitions. 

In light of evolving trade policies, dealmakers should adopt proactive strategies to mitigate risks and capitalize on emerging opportunities:

• Conduct comprehensive impact assessments—Evaluate regulatory, financial, and operational risks, including trade policies, taxation, supply chain dependencies, and workforce mobility.
• Develop robust mitigation plans—Sellers should clearly outline strategies to sustain and enhance business value despite trade uncertainties, demonstrating resilience to potential buyers.
• Enhance due diligence processes—Buyers must implement data-driven diligence strategies to assess the potential impact of trade scenarios on target businesses, focusing on cash flow implications, valuation risks, and long-term sustainability.
• Engage trusted advisors—Work with experienced M&A professionals specializing in cross-border transactions, taxation, transfer pricing, logistics, and supply chain optimization to navigate complex trade landscapes effectively.

As global trade policies continue to evolve, businesses must remain agile in their M&A strategies. While tariff uncertainties introduce short-term volatility, they may also create long-term opportunities for strategic acquisitions and restructuring. Companies that proactively adapt to the shifting trade environment will be well-positioned to capitalize on emerging market dynamics and drive sustainable growth in an increasingly complex economic landscape.

1 Canada’s M&A outlook for 2025: A year of optimism and complexity | Miller Thomson

2 These industries would be hit hardest by Trump's 25% tariffs | Canadian Grocer

Inflation control and anticipated rate cuts

Inflation control remains a critical focus for both Canada and the U.S.. After post-pandemic inflation surged to levels not seen since the 1980s, central banks responded with aggressive interest rate hikes starting in 2022. Now, as inflation stabilizes, the tide is shifting.

The Bank of Canada has made four consecutive cuts to its key interest rate—the most recent on Oct. 23, bringing it to 3.75%. Similarly, the U.S. Federal Reserve reduced rates by 50 basis points on Sept. 18, lowering the interest rate target to a range of 4.75% to 5%. Market signals suggest further cuts could follow in late 2024 and into next year as inflation continues to cool.

Mid-market M&A is particularly sensitive to interest rate fluctuations due to its reliance on debt financing. High rates since 2022 have delayed many transactions, with buyers grappling with expensive financing and sellers adjusting their price expectations. However, the anticipated rate cuts offer a more optimistic outlook. Lower rates will reduce borrowing costs, making financing more attractive for buyers. As inflation stabilizes and valuations become more aligned, both buyers and sellers could see renewed momentum, especially in sectors like technology and healthcare—which have struggled with high financing costs but maintained strong fundamentals.

As rates decrease, private equity firms and strategic buyers will return to the market, driving a resurgence in deal flow. Mid-market players with strong cash positions will find appealing opportunities to secure assets at more favourable prices. Additionally, businesses that endured the high-rate environment may become prime targets for consolidation, with M&A serving as a pathway for growth or exit.

Despite the optimism surrounding potential rate cuts, sellers should remain cautious. Uncertainty around inflationary pressures, geopolitical risks, and economic conditions could still impact the trajectory of central bank policies. Sellers will need to manage their expectations carefully and may need to consider alternative deal structures, such as earn-outs or seller financing, to maintain deal momentum and mitigate risks. Flexibility in structuring deals will be key as market conditions evolve, ensuring sellers can still achieve favourable outcomes even in a fluctuating financing environment.

A generational shift: the retirement of baby boomers

The aging of the baby boomers is transforming the Canadian business landscape, particularly for small and medium-sized enterprises (SMEs). As one of the most entrepreneurial generations, many baby boomers built or acquired businesses decades ago, and now find themselves on the cusp of retirement.

The Canadian Federation of Independent Business notes that nearly three-quarters of business owners plan to retire by 2032, yet almost half lack a formal succession plan¹. This lack of preparation is often driven by emotional attachment to the business, uncertainty about the future, and the difficulty of identifying a suitable successor.

For sellers, retirement offers the dual opportunity of financial security and preserving their legacy, but the path to a successful exit is often more complex than anticipated. There’s often a disparity between buyers and sellers regarding the perceived value of the business and expectations for future performance, factoring in key-person risk. To navigate these roadblocks, sellers must engage in early succession planning, seeking the guidance of professional advisors to accurately assess their company’s market position and prepare it for sale. Succession planning ensures that a business is structured and presented in a way that attracts the right buyer and aligns with market realities.

Moreover, sellers should remain open to flexible deal structures, such as vendor take-backs, minority equity rolls, or gradual phased transitions. These strategies enable owners to step away at a comfortable pace while maintaining continuity in leadership. To ensure a successful exit, sellers will need to take early action, engage in careful planning, and demonstrate a willingness to adapt to evolving market conditions and buyer expectations.

The retirement of baby boomers is not just a personal milestone for owners—it’s reshaping entire sectors like manufacturing, construction, retail, and professional services, many of which rely on long-standing family-owned businesses. The transition in ownership can unlock new growth and investment opportunities in Canada's mid-market economy as fresh capital, innovation, and strategic buyers enter the scene.

1 https://20336445.fs1.hubspotusercontent-na1.net/hubfs/20336445/research/reports/2022/2022-10-EN-Succession-Tsunami-Preparing-for-a-decade-of-small-business-transitions-in-Canada.pdf

Navigating interest rates and market multiples

A critical consideration for mid-market M&A participants in Canada is navigating the impact of interest rates, which reached their highest levels in more than 20 years in 2023. On June 5, the Bank of Canada (BoC) responded to easing inflationary pressures by reducing its key interest rate to 4.75%, down from 5%. The BoC further reduced the rate to 4.5% on July 24. These adjustments reflect the central bank's strategy to support economic growth amidst evolving market dynamics, including global trade shifts, supply chain disruptions, and fluctuating commodity prices. We expect that the BoC will continue to gradually reduce rates for the balance of 2024 and into 2025.

The elevated interest rate environment significantly influences market multiples and deal structures in mid-market M&A transactions. Higher interest rates increase the cost of capital, negatively impacting valuation metrics and heightening risks linked to acquisitions. Elevated rates can also temper economic activity and investor confidence by constraining corporate investments and consumer spending. Conversely, lower rates stimulate demand and economic growth by reducing borrowing costs, encouraging investments, and boosting consumer confidence.

Mid-market M&A stakeholders must engage in strategic discussions to assess the implications of these financial variables on deal negotiations and investment strategies. They need to manage risks associated with increased financing costs and evaluate the potential impact on cash flow projections, earnings forecasts, and overall deal viability.

Staying informed and proactive is essential for adapting strategies to leverage opportunities that align with long-term growth objectives amidst fluctuating economic conditions. This includes considering alternative financing options, adjusting valuation models, and monitoring macroeconomic indicators that could influence future interest rate movements. By doing so, stakeholders can navigate the complexities of the mid-market M&A landscape with greater confidence and strategic foresight.

Moderate growth anticipated after 2023 slowdown

Following the economic deceleration in 2023, the outlook for the second half of 2024 in Canada's mid-market M&A sector indicates a phase of moderate growth. This expectation stems from several factors, including easing inflation and strategic interest rate cuts by the Bank of Canada, designed to bolster economic activity without reigniting inflationary pressures.

Despite these positive indicators, the anticipated growth for 2024 is expected to be measured, not reaching the peak levels seen during the 2021-22 period. This moderation reflects a broader stabilization in the economy, influenced by high interest rates and a cautious consumer spending environment.

The Canadian economy experienced a modest rebound in early 2024, driven by increased consumer spending, but this momentum is projected to taper off due to lingering high borrowing costs and a gradual reduction in the pandemic-era financial cushion. Additionally, geopolitical risks—such as ongoing conflicts and potential trade tensions, coupled with fluctuating commodity prices, particularly in the oil and gas sector—present uncertainties that could impact growth trajectories.

In this landscape, mid-market M&A activity will need to navigate these economic headwinds, balancing the opportunities presented by strategic rate cuts against the challenges of a high-debt consumer base and external economic pressures. While growth is on the horizon, it will be tempered and gradual, demanding strategic planning and adaptability from market participants.