Canadian mergers and acquisitions activity rose across all deal sizes in the third quarter of the year, according to the “Canada's Q3 2025 M&A Landscape” report published by Bennett Jones.
Total deal value in Q3 2025 was up US$48.6 billion compared to Q3 2024. Moreover, year-to-date deal value this year was US$125.2 billion higher than last year’s total despite a drop in deal volume.
According to Bennett Jones, this outcome reflects the improved dealmaking sentiment as companies and investors adjusted to the uncertainty plaguing the first half of the year. July marked the most active month of 2025 in terms of deal count in Canada while September logged the highest total deal value at US$60 billion.
The Bank of Canada and the US Federal Reserve dropped interest rates by a quarter-point on September 17. Presently, Canada’s policy rate is 2.5 percent and the US target range at 4-4.25 percent.
Deal execution has also shifted in the current landscape.
“Many negotiations have become more intense, often characterized by stop-and-start discussions and a focus on pushing down price wherever possible. Buyers are also demonstrating a lower appetite for risk. These challenges appear to stem from the perceived leverage of buyers in today’s market, as they push for more favourable terms,” wrote report authors Kwang Lim, Angela Blake, and Laura James.
Earnouts in M&A
Earnouts have increasingly been applied in risk and uncertainty management and to bridge the valuation gaps between buyers and sellers. Per SRS Acquiom, earnouts were applied in 22 percent of non-life sciences private-target M&A transactions last year; 27 percent of 2024 non-life sciences deals with maximum closing payments of US$50 million included earnouts.
According to Bennett Jones, the volatility of the current economic situation due to tariffs has limited the use of historical financial results to support valuations and act as a reliable future financial performance indicator. Earnouts are being utilized for risk allocation purposes.
“We have observed sellers and buyers remaining alert to potential vulnerabilities of certain financial metrics such as changes in cost and expense structures and in accounting treatments, with the majority of deals landing on EBITDA-based milestones,” the report’s authors wrote. “In some circumstances, we have also seen non-financial benchmarks, such as receipt of regulatory approvals, being used.”
The heightened use of earnouts has caused litigation volume to tick up given that actual payouts are considerably less than the maximum negotiated originally.
S&P Global Market Intelligence noted that the aggregate quarterly deal value has stabilized this year, even though deal count did not exceed the figure recorded in Q4 of 2024. In the mid-market M&A scene, deal value slipped in Q3 2025 but deal count increased.
The report highlighted flexibility and a willingness to address buyer concerns as deal drivers. Bennett Jones indicated that it is still observing deal dialogue and “a stable pipeline of transactions poised to close” going into the end of the year.