Rocky Mountains Ahead: The Outlook for Canadian PE
Shifting regulations at home and across the border mean Canadian private equity firms see challenges on the horizon—but also opportunities
Canadian private equity firms saw a strong year in 2024, with deal value at its highest point since 2019, according to Canadian law firm McCarthy Tétrault’s 2025 Canadian private equity outlook released last month.
On the other hand, the overall number of deals was down, hitting the lowest number since 2020.
Canadian private equity firms can expect 2025 to present similar ups and downs, analysts say, with big opportunities coming alongside big challenges. New legal and regulatory hurdles may create headwinds for firms looking to ink new deals, but hot spots like AI promise fertile ground in the year ahead. Meanwhile, the ongoing tariff battle between the Trump administration and Canada sets up new hurdles for dealmakers, while also offering some surprising opportunities for growth.
Middle Market Growth spoke to McCarthy Tétrault’s Patrick M. Shea, partner and co-head of the private equity group, to learn more about the 2025 outlook for Canadian PE.
AI Grows Up
As artificial intelligence businesses grow out of the startup stage and mature into cash-flow positive businesses, Canadian private equity firms will be eager to invest. The report notes that the number of venture capital and private equity AI deals in Canada has increased steadily since 2013, with deal sizes generally trending upwards.
Shea says that the kinds of AI companies attracting PE interest run the gamut from pure AI tech companies to digital infrastructure businesses to companies that use AI to perform other business functions. “I think the investment options are unlimited, given that,” he notes.
But investors in the space face legislative and regulatory uncertainty. When the Canadian Parliament was prorogued in early January, the Artificial Intelligence and Data Act (AIDA), introduced in 2022, died along with other bills not yet enacted into law. This act would have codified consumer protections in regards to AI, while implementing new regulatory requirements and creating a commissioner role to oversee compliance. Private equity firms that were preparing for this act to be implemented will now need to revert back to reviewing existing, non-AI-specific laws and regulations to make AI-related decisions about their firms and portfolio companies.
“PE firms will have to ensure that they themselves as firms, but also their portfolio companies, are properly managing and mitigating AI risk…[and] making sure they’re in compliance with applicable regulations. Even though it’s not AI-specific regulation, there are many relevant laws that apply to AI, and there are always related litigation risks,” says Shea.
Will Borders Become Less Porous?
In 2024, ACG’s Middle-Market Outlook Survey found that 74.1% of U.S. investors were interested in M&A opportunities in Canada, making it the most attractive of any foreign region. But these kinds of cross-border deals could face new challenges from the Trump administration, which imposed a 25% tariff on steel and aluminum imports set to go into effect March 12. While this tariff is global, Canada is the largest exporter of steel and aluminum to the U.S. Trump has signaled that his broader tariffs on all goods crossing the U.S. border from Canada and Mexico will also go forward, which means that Canada’s retaliatory tariffs on certain U.S. imports are likely to follow suit.
Shea notes that Trump’s tariff policies will bring challenges in the near-term and possible opportunities in the longer view. “The reality is, whether it be massive tariffs like the proposed 25% on all products or tariffs on only certain products, any tariffs on Canadian products will have a very significant negative effect on any Canadian business that exports to the United States, which happens to be a lot of Canadian businesses, and therefore could have a significant effect on company valuations,” he says.
The wait-and-see approach necessitated by the moment could stall a good deal of cross-border investment into Canada, or from Canada into the U.S., as firms wait for the dust to settle. However, if and when broader tariffs do kick in, Canadian companies, including those owned by private equity firms, may be looking to buy manufacturing and production facilities in the U.S. to “effectively get on the right side” of tariffs, Shea says.
“It’s basically a perfectly legal way to circumvent the tariffs,” he explains. “There could be some really interesting strategic opportunities, particularly for Canadian private equity-backed portfolio companies that have a lot of exposure to trade to the United States, to acquire U.S. businesses and vice versa, assuming that Canada imposes additional retaliatory tariffs, which is very likely.”
There could be some really interesting strategic opportunities, particularly for Canadian private equity-backed portfolio companies that have a lot of exposure to trade to the United States, to acquire U.S. businesses and vice versa.
Patrick M. Shea
McCarthy Tétrault
Antitrust Reforms Reshape PE
In June 2024, a series of reforms to Canada’s Competition Act became law, impacting the dealmaking space in new and tangible ways. The amendments included merger notification thresholds being changed to include sales into Canada, an expanded look-back period for antitrust reviews and a new structural presumption that a transaction that is likely to result in a market share of more than 30% is anticompetitive.
This will impact deals dealmakers might not even “think of as Canadian,” says Shea. “It could be a U.S. company that has no operations in Canada, but if they’re selling more than $93 million of goods into Canada, it could trigger a Canadian antitrust review.”
The changes to the look-back period will also impact PE firms, particularly those with extensive roll-up strategies, as there’s now a higher chance of regulatory scrutiny after closing, because the period has been expanded from one year after closing to three for non-notified transactions.
But likely the most significant change is the structural presumption becoming enshrined into law, says Shea. While similar to the equivalent U.S. guideline, the Canadian presumption will likely be more difficult to amend or terminate than its U.S. analog and will allow less discretion from Canadian enforcers.
“It doesn’t necessarily mean that deals won’t get done because of antitrust review. It simply means that additional deals may face a lengthy review and/or a more complex review,” says Shea.
Hilary Collins is ACG’s Associate Editor.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
