The Canadian M&A market warrants optimism, but regulatory risk is on the horizon

Things are looking up after a challenging year, but regulators are being more assertive
The Canadian M&A market warrants optimism, but regulatory risk is on the horizon

2023 was a challenging year for Canadian mergers and acquisitions. Market uncertainty caused by interest rate increases and geopolitical risk caused concerns over valuations and financing, says Angela Blake at Bennett Jones LLP. Many of those factors are still in play today.

In the tech sector, dealmaking was negatively impacted by the collapse of Silicon Valley Bank in March 2023, further increasing what was already a lag in M&A, says Brigitte LeBlanc-Lapointe at Norton Rose Fulbright Canada LLP.

Yet there were bright spots, including utilities, energy, and mining, especially critical minerals and clean energy. Stability and expected interest rate reductions will allow businesses to make longer-term plans for M&A and growth.

“I think there are a lot of people waiting for rate cuts to happen because once those costs come down, lending costs come down, and that can have a cascading effect,” says Aaron Atkinson at Davies Ward Phillips & Vineberg LLP.

Artificial intelligence’s explosion also means buyers in various sectors are starting to leverage it in their internal processes to source targets, says LeBlanc-Lapointe.

Yet the path ahead is not devoid of obstacles. An increasing regulatory assertiveness, particularly in competition and foreign investment, introduces layers of complexity and unpredictability into deal-making. The Investment Canada Act amendments and the Competition Bureau’s enhanced powers signify a more interventionist stance, requiring businesses to navigate a labyrinth of regulatory scrutiny.

“In the West, competition regulators are getting more assertive,” says Michael Amm, co-head of the M&A practice at Torys LLP. “They are challenging more deals, and they’re getting more powers to do so, generally – whether that is in the US, the EU, or Canada.”

Simultaneously, the emergence of an anti-ESG movement, primarily in the US, foreshadows potential ideological conflicts for Canadian corporations striving to align with evolving environmental and social governance standards. This tug of war between progressing toward net-zero targets and contending with opposing viewpoints underscores the multifaceted challenges businesses face.

While things are looking up for M&A and finance, mitigating these risks will be vital to business success. The strategic advisors in this edition will help position you for success today and best address tomorrow’s challenges.