Going into 2025, there were high expectations for mergers and acquisitions in the health and life sciences space. However, like many sectors, uncertainty about a weaker economy in the wake of threatened US tariffs has slowed, though not stopped, dealmaking, according to lawyers who work in this space.
“We came into 2025 with real optimism across the health and life sciences space,” says Shayna Goldman, partner with Davies Ward Phillips & Vineberg LLP. She notes that an uptick in activity in the third and fourth quarters of 2024 appeared to indicate an upward trend that would hopefully continue. A steady reduction of Canadian interest rates and an accumulation of capital waiting to be deployed indicated a positive market for M&A in health and life sciences.
However, since the US November elections that gave Donald Trump a second term as president, with his vows to impose stiff tariffs on Canada and the rest of the world, there has been much “uncertainty that many weren’t expecting,” Goldman says. The result is that while the desire for mergers and acquisitions remains strong, potential acquirers and sellers are slowing down their plans as they await developments.
What’s especially challenging, Goldman says, is the unpredictability of Trump’s comments on tariffs from day to day. “That makes valuations and dealmaking more difficult.”
She adds that buyers and sellers want to do deals despite the uncertainty, “but what we’re seeing is a slowing down of the deal process, where clients are a bit more cautious and spending more time on due diligence.”
For pharmaceutical companies, President Trump's recent signing of an executive order directing federal agencies to cut drug prices using a “most favoured nation” policy complicates the situation. This policy would tie the prices of drugs in the US to lower ones in other developed countries.
Says Goldman: “It’s not clear what the outcome of all this will be, but we do know that anything relating to tariffs or US efforts to reduce the cost of drugs sold in the United States could have significant impacts.”
The potential impact of tariffs is considerable, given that the US is a major importer of Canadian medical devices, pharmaceuticals and biotechnology products. In 2024, Canada’s total export of medical equipment, supplies and control instruments to the US exceeded $6.8 billion, while the export of pharmaceutical, health and personal care products to the US surpassed $12.6 billion.
Marcus Hinkley, partner at Gowling WLG’s Toronto office, notes that the above figures account for nearly 70 percent of Canada’s total exports of those products to all countries, making the US our largest market. As such, the possibility of a 25 percent tariff on medical products could seriously hurt the flow of these goods to the US.
“So, for argument’s sake, if it costs $10,000 to manufacture a medical device in Canada, which you then sell into the US where it is subject to tariffs,” he says. “You’re either going to have to take a loss on the product, or you’re potentially going to lose a sale because it’s more expensive.”
Hinkley adds, “From an M&A perspective, if companies are losing customers and revenue, this builds a slowness into the dealmaking scene. " Buyers and sellers may not be able to correctly ascertain or agree on the value and price of a target, and more detailed diligence on supply chains and quality of earnings is needed.
However, it’s not all doom and gloom. Hinkley says that motivated parties can access a box of legal and financial tools, such as earnouts, rolled equity, and other incentives, to de-risk an acquisition in an uncertain environment and bridge the valuation gap between buyer and seller.
Earnouts are a portion of the purchase price contingent upon the target business meeting specific performance milestones, typically tied to revenue, EBITDA, or customer retention. Rolled equity is the portion of the seller’s ownership reinvested in the acquiring entity. Instead of taking 100 percent cash, the seller maintains a minority stake in the new business.
However, making deals in today’s uncertain environment requires “more legal and financial diligence” on the target company to combat some of the current economic risks.
From a legal perspective, Hinkley says that in addition to identifying change of control or assignment provisions that may impact a transaction, buyers will want to focus on supply chain contracts and commercial agreements, among other diligence items, to identify any commercial terms dealing with the allocation of tariffs or other material commercial terms that they could impact. In contrast, financial advisers may wish to conduct a “deeper dive” into the company’s financial health and customer base.
M&A lawyers also point out that while they understand dealmaking in this space has likely slowed, they haven’t necessarily noticed it themselves. Emma Costante, partner with Blake Cassels & Graydon LLP, says the buzz late last year among M&A lawyers connected with health and life sciences was that 2025 would be a “rallying year,” but the more recent word on the street is “perhaps less positive.”
However, Costante says, “Regardless of what people are saying in the market, I have not seen a slowdown in my practice.” But she adds that those who already have deals on the table “are proceeding with caution.”
David Frost, head of the business law group at McCarthy Tétrault LLP in Vancouver – and national co-leader of the firm’s life sciences group – says the election of Trump and his tariff agenda and policies have created “new macroeconomic and geopolitical issues that we haven’t dealt with before.” What’s also challenging, he notes, is that the word on tariffs seems to change daily.
Frost notes that it isn’t just tariffs that make dealmaking in the health and life sciences sector challenging. The current and prospective reductions in US government funding to research and development companies, hospitals and other institutions that comprise the client base for buyers and target companies loom large. “Healthcare companies have a huge spending rate, and they rely on constant, consistent funding. If that is turned off or slowed down, it has a knock-on effect.”
According to Frost, another complicating factor for M&A in certain areas of healthcare and the life sciences is the regulatory environment. “Lately, there has been more concern in Canada about the consolidation of certain industries, and healthcare is one of them.”
Additionally, consideration must be given to the regulatory bodies that control aspects of certain professions, which can complicate dealmaking, such as “roll-ups” of dental practices, veterinary clinics, and pharmacies, for example. Ownership of these types of businesses must be headed by someone licensed to practise in those professions.
Frost says some structures can facilitate such ownership while also allowing other parties to invest capital. However, parties involved in such transactions must work closely with their lawyers to ensure they advise on the best way to structure the deals, thereby remaining in regulatory compliance.
Despite the global economy heading into uncharted waters due to tariffs and the potential for a trade war, lawyers suggest that opportunities for dealmaking in the health and life sciences space remain. This is especially true, Frost says, for companies with strong leadership and a diverse portfolio that can pivot and maneuver to other opportunities.
He adds that one of the unique aspects of life sciences and healthcare companies is that many can often pivot their technology and research towards different applications. They usually have “a choice of lanes to go into, compared to companies in other sectors where there really is only one lane.”
Goldman at Davies also points out that, notwithstanding the obvious uncertainties relating to Canada-US trade relations, “we’re seeing an increase in international interest” – both from Canadian companies looking internationally and non-US companies looking into Canada.
“In the current climate, I am very optimistic because Canada has a lot of potential as a growth market, given its relatively stable economy, regulatory landscape and political atmosphere.
Gowling’s Hinkley adds that as players in the health and life sciences sector become accustomed to the “new normal,” mergers and acquisitions are likely to increase, especially as the current political climate prompts Canada to draw closer to other trading partners such as the United Kingdom and Europe, and venture capital and private equity groups have capital to deploy.
“There are a lot of good, young, Canadian companies with market-leading research,” he adds, pointing to the radiopharmaceuticals space as one example where Canada is a leader in its field.
Costante at Blakes also feels optimistic about how Canada has the opportunity to position itself as a bigger player in the global landscape. “We’ve been hearing that changes to US public funding, such as reductions to certain [National Institutes of Health] programs, may create opportunities for Canadian companies and universities to attract more researchers and innovators to Canada.”
Costante also notes that in the long term, those in the health and life sciences sector are accustomed to the sector's ebb and flow, as well as geopolitical and macroeconomic shifts. The causes may differ, but the cycle of “peaks and troughs” is not unusual or something they haven’t dealt with.
And as always, in any environment, there are still “avenues for moving forward and creating room for opportunity, particularly when we’re talking about high-innovation industries such as life sciences.”