The recent threat of tariffs since Donald Trump won a second term as US president has dampened immediate enthusiasm for M&A activity in the energy sector, a cornerstone of Canada’s economy and its relationship with the United States, say lawyers who work on dealmaking in the industry.
However, that doesn’t mean interest in mergers and acquisitions has completely disappeared; instead, much of this activity has been put on hold for a while as Canada and other nations attempt to navigate the bumpy rollercoaster ride of Trump’s trade war.
Before and even during the U.S. election campaign last year that ended in a Trump victory, there was still optimism for growing energy-related M&A, says Maxine Ethier, partner with McCarthy Tétrault LLP’s business law Group in Toronto.
The thinking was that Trump was going to “come in and deregulate, make things easier with less oversight for government agencies, which would have had ripple effects on the Canadian economy as well,” she says. Ethier adds players on the buy and sell side, thought this could have led to more Canadian deal flow, more opportunities for investors and more cross-border transactions.
Those hopes were soon tempered by geopolitical volatility, including tariff wars, unpredictable U.S. policy shifts, and market instability. These developments have not only stalled deal activity but forced Canadian policymakers and investors to reevaluate the country’s reliance on its southern neighbour.
There is a realization amongst investors and companies that at this point, there appears to be no timeline for the end of this uncertainty, Ethier says. However, “at a certain point, dealmakers have to figure out how to operate within this uncertainty, and find ways to seize new opportunities rather than sitting on the sidelines.”
“Investors are not just going to sit on the sidelines for all of Trump’s presidency. People will learn to adjust.”
Ethier points out that the successful investors and companies are those that have learned to navigate uncertainty and act quickly when the prospect of a good deal arises.
“The really good investors are finding the opportunities. They’re tracking the market shifts, spotting value, and moving in where others hesitate.”
International investors may also shift more of their attention to Canada, Ethier says, pointing to its vast natural resources, stable governance, and a changing regulatory environment that emphasizes the fast-tracking of nationally significant infrastructure projects, such as pipelines. However, Indigenous communities have expressed concern over recent passage of Bill C-5, which allows for fast-tracking of “nation-building” projects, and how it might trample on their rights. Nine Ontario First Nations have filed a court challenge on Bill C-5 and Ontario’s similar Bill 5.
Brent Kraus, Partner at Bennett Jones LLP and co-head of its M&A practice, also points to volatility and uncertainty as a drag on dealmaking. “M&A requires a level of predictability,” he says —buyers want to understand the long-term outlook of the assets they are acquiring. In times of uncertainty, those models become more difficult to build and assess. This can result in hesitation and a reduced volume of transactions.”
“In any transaction, there’s always a certain level of risk, but when that risk reaches a more critical level, some buyers feel it is safer to hold off on deals.”
Kraus notes that amidst this uncertainty, some companies have become more inwardly focused, revisiting their capital budgets and operational strategies rather than actively pursuing new acquisitions. Supply chain concerns—especially for sectors like the oil sands—have added another layer of complexity.
That said, the M&A market has not entirely dried up, says Kraus, with some transactions being finalized. Most of these are those that were already in the pipeline from the previous year or ones that strongly align with a company’s long-term business strategies. In addition, sentiment has improved as the year has progressed, and when desirable assets or companies have come to market, there has been robust interest.
Says Kraus: “The limited universe of buyers continues to display confidence in their long-term plans, and regardless of the uncertainty we’re seeing, where there’s a fit with those plans, there is a willingness to transact.”
There’s also renewed, albeit cautious, interest from new entrants into the Canadian energy space, Kraus says, including U.S.-based investors and private equity firms. Though activity has yet to reach high volumes, this growing interest could signal more deals if trade and regulatory uncertainties begin to ease.
“Our sense is that if we start to see resolution to these matters, hopefully over the summer, there’s enough pent-up interest that the last half of this year could be very active.”
Megan Ollivier, Partner with the energy practice of Stikeman Elliott LLP in Calgary, says that despite a slowdown in deal flow, M&A activity has not stopped. “Instead, energy players—particularly in Alberta—are becoming more selective and strategic.”
She adds that investor appetite “remains strong in sectors like carbon capture, liquefied natural gas (LNG), and midstream infrastructure, where long-term growth potential is still evident.”
To navigate this uncertain environment, Ollivier says companies involved in dealmaking are turning to flexible deal structures and risk-mitigation tools. “We’ve been seeing the use of more earnouts than we have previously,” she says. “Some parties are also structuring deals with milestone-based payments.”
Legal advisors are playing a crucial role by helping clients build strategic optionality into transactions. “Lawyers can help advise clients on how to be strategic but remain flexible,” Ollivier says, adding that upfront due diligence and contingency planning have become central to deal success.
And there still is cautious optimism. While regulatory and geopolitical uncertainties have added layers of complexity to the M&A process in Canada’s energy sector, they have not deterred activity altogether. Instead, they’ve driven a shift toward more resilient and strategic dealmaking—a trend likely to define the remainder of 2025.
“We don’t think that anything that’s happening in the market… is taking M&A off the table,” she says. “We just think it’s making the parties have more conversations.”
According to Paul Barbeau, partner at McMillan LLP, the best words to describe dealmaking sentiment in the energy industry include “uncertainty” and “some cautious optimism.” This dual sentiment reflects the broader challenges and opportunities facing the industry as it adapts to shifting economic, geopolitical, and regulatory dynamics.
Volatility in commodity prices and regulatory unpredictability continue to weigh heavily on investment decisions. Barbeau notes, “The energy industry, like any industry, does well when there’s some level of predictability and certainty, because it allows for appropriate valuations of the targets.”
In this context, dealmakers are increasingly adopting flexible structures and risk-mitigation tools, including earnouts and representations and warranties (R&W) insurance, to bridge valuation gaps and manage deal risk.
William Pellerin, Barbeau’s colleague at McMillan, observes that “the tariff situation on both sides of the border is leading to some pause in dealmaking. He cited an example of a major energy infrastructure project in Saskatchewan being hit with unexpected U.S. tariffs on imported steel, resulting in “tens of millions of dollars of duties.” These types of surprises not only affect pricing but can jeopardize entire deals due to valuation disputes and uncertainty over future cost structures.
Nevertheless, optimism persists, partly due to increased political will to support domestic energy and infrastructure projects. Pellerin points to a growing interest in “grand nation-building projects with streamlined approvals,” particularly in sectors such as renewables and energy transmission, which are being driven in part by demand from data centres.
“These trends suggest that energy M&A may pick up in areas where regulatory clarity improves and strategic value is evident.” Still,
Another tailwind is the perception that Canada remains a relatively stable destination for long-term capital. “If Canada plays its cards right, it can be a destination for a lot of that capital and meet a lot of global energy needs,” Barbeau says. He adds that there is some optimism in Alberta due to the new federal government’s evolving tone, under Prime Minister Mark Carney, which appears “less ideologically opposed to supporting growth in this industry” than the previous government.”
Yet, deal volume is still constrained by the ever-present valuation gap. “On the sell side, you have a tendency to look at your historical high-water mark when it comes to valuing your company,” Barbeau explains. “Buyers, of course, are looking forward and don’t want to overpay.” This valuation gap, always a fixture in M&A, only widens during periods of instability.
Ultimately, Barbeau says, “there’ll always be M&A - It’s just a fundamental part of living in an economy with open capital markets.”
What remains to be seen is whether Canada can create the regulatory and investment conditions needed to attract and retain the capital to realize its energy potential, including through inbound corporate mergers and acquisitions.