A person walks past the TMX Market Centre in Toronto, on Sept. 11, 2024.Paige Taylor White/The Canadian Press
Canadian merger and acquisition activity was strong over the first three months of 2025, but deal-making momentum has likely already stalled in the face of a mounting North American trade war.
Deals involving Canadian companies totalled US$69-billion in the first quarter, according to data from LSEG Data & Analytics to be released Friday. That is more than double the result from the same period in 2024.
But many of the 787 transactions that took place between early January and late March were announced before U.S. tariff threats put a chill on M&A conversations, according to Peter Castiel. Mr. Castiel is chair of Stikeman Elliot LLP, the top legal advisor for M&A in Canada. He said tariff-related uncertainty is pushing buyer and seller expectations apart.
“The seller will say, ‘This is temporary so there shouldn’t be a full discount,’ but the purchaser will say, ‘Well, if I’m going to offer a price I am going to have to discount the full amount,’” Mr. Castiel said. “The moment you have a gap between bid and ask, that is when transactions start stalling.”
Sales of new stock issues, already mired for years near historic lows, remained subdued with equity issuances for the first quarter of 2025 totalling less than $4-billion. That is more than 21 per cent below 2024 levels and nearly 58 per cent below the first quarter average since 2010 of $9.4-billion.
Nitin Babbar, global head of equity capital markets at Royal Bank of Canada, said the market appears to have permanently shifted.
“Where Canada has been going, and this is true of the U.S. as well, there are more episodic transactions rather than a continual flow,” he said. “The episodic nature of the market is something that I think is here to stay rather than a continual flow.”
Jackie Nixon, who joined RBC from Goldman Sachs midway through 2024 to lead its Canadian equity capital markets team, said she hoped the current environment was not the new normal “and that we will return to a world where there is more deal flow in equity markets.”
“But this has been the world we’ve been living in for the past couple of years, where the velocity of activity remains muted.”
In a more episodic stock selling environment, landing a leading role underwriting even a moderately sized transaction can have a dramatic impact on the performance of any given banking team. RBC, for example, was the sole bookrunner on a share offering in late March from GFL Environmental that raised nearly $1.3-billion.
That one deal single-handedly catapulted RBC into becoming the top investment bank for stock deals in the first quarter of 2025.
Another trend that extended into the first quarter from 2024 was companies’ clear preference for debt. Canadian businesses borrowed $23.9-billion in the first three months of the year, more than 7 per cent above the start of a corporate borrowing binge during the same period last year and more than 42 per cent above the Q1 average since 2010.
Despite all the uncertainty, Mr. Castiel said some deals are still getting done, notably in the software and services sectors where tariffs are less of a concern.
“There are also a handful of deals that are in areas that are tariff-sensitive, but the parties have figured out a way to try and deal with that, whether that was by way of earnouts or price adjustments,” Mr. Castiel said.
Many U.S. buyers are “pressing pause” on mergers and acquisitions involving Canadian companies as long as the trade war remains under way, he said, “but once that uncertainty settles, I do see M&A coming back and coming back strong.”
The challenge then becomes a question of timing. One month ago, Mr. Castiel said he would have expected the uncertainty to last a maximum of three years, or the bulk of Donald Trump’s remaining term as U.S. President. That was until he read Mr. Trump is now openly considering ways to serve another term despite the U.S. Constitution explicitly prohibiting that possibility.
“So is this really temporary, or is this the new world order?” Mr. Castiel said.