Sign in Subscribe

Canada's M&A market closed 2025 at record highs

Last updated on 
Share

Canada's mergers and acquisitions market ended 2025 above the 2021 all-time record on aggregate deal value, posting US$389.69 billion for the full year. If you own a Canadian business and have been waiting for the right moment to think about an exit, the market just gave you a clear signal: the window is open.

But the picture is more nuanced than the headline number suggests. Q4 2025 was the softest quarter of the year, with 239 lower-middle-market transactions recorded, down 12.5 per cent from Q3. Tariff uncertainty, buyer caution, and valuation gaps slowed momentum heading into year-end. Understanding both sides of that equation matters if you are planning a sale.

The sectors driving activity

Not all industries performed equally. Energy was the standout story, with deal value up 257 per cent year over year. Mining followed at 220 per cent growth, and utilities rose 82 per cent. Eight gold deals topped US$1 billion in 2025, compared to just one in 2024.

In the lower-middle market, the busiest sectors by transaction count were industrials (55 deals), technology (42), and financial services (28). If your business operates in any of these spaces, buyer interest is real and active.

What financing looks like right now

The Bank of Canada cut its overnight rate seven times between June 2024 and October 2025, bringing it from 5.00 per cent down to 2.25 per cent. That rate-cutting cycle is now over. The rate held at 2.25 per cent at the Dec. 10, 2025 decision.

What has changed permanently is the financing landscape. Private credit is now a standard feature of Canadian mid-market M&A, not a fallback option. Hybrid structures combining bank senior debt with private credit mezzanine are common. U.S. direct lenders are also increasingly stepping in as sole financiers on inbound cross-border deals. For sellers, this means there is more capital available to fund acquisitions than at any point in recent memory.

The succession problem hiding in plain sight

Here is the number that should stop every business owner in their tracks: 76 per cent of Canadian small-business owners plan to exit in the next decade. Of those, 91 per cent have no formal succession plan in place.

More than $2 trillion in Canadian business assets is expected to change hands over that period. BDC estimates that 25 per cent of affected SMEs will simply shut down rather than sell, leaving significant value on the table and livelihoods at risk.

That is not a market statistic. That is a personal financial outcome for thousands of owners who waited too long.

What buyers are watching in 2026

Private equity firms ended 2025 sitting on substantial accumulated dry powder and are under growing pressure to deploy it. MNP Corporate Finance projects M&A activity to accelerate in 2026 on the back of that pressure. Osler LLP put it plainly: for smaller and mid-market companies, the key question is how long they can afford to stay on the sidelines. Once trade clarity improves, a release of pent-up deal activity is widely expected.

That said, buyers are doing their homework. Tariff exposure is being priced into valuations in affected sectors, with discounts applied or earnout structures demanded where risk is unclear. If your business has supply chain or customer concentration tied to U.S. trade flows, that conversation will happen at the negotiating table. Better to have it on your terms.

Three questions to ask your advisors now

The Q4 2025 data points to three immediate priorities for any owner with an exit on the horizon:

  1. Has your business been assessed for tariff exposure as part of a formal valuation exercise?
  2. Are you on track to qualify for the full Lifetime Capital Gains Exemption ($1.25M) and the Canadian Entrepreneurs' Incentive (additional $2M at a reduced inclusion rate)?
  3. Are you positioned to attract private equity interest, and do you know what steps would move the needle fastest?

Exit readiness does not happen in a quarter. The owners who get the best outcomes start three to five years before their intended sale date.

Sources

MNP Corporate Finance Q4 2025 Middle Market M&A Update; Bennett Jones LLP, Canada’s Q4 2025 M&A Landscape; Bank of Canada, Policy Interest Rate; CVCA Q3 2025 Market Overview; BDC, Business Transitions in Canada; PwC Canada 2026 M&A Outlook; Osler LLP, Canadian M&A Outlook: Cautious Optimism in a Reshaped Market.