News

Adapting to Uncertainty

For much of the past two years, uncertainty has dominated discussions around capital allocation, acquisitions, and strategic growth. While uncertainty remains, businesses are increasingly demonstrating an ability to adapt and move forward rather than wait on the sidelines.

One of the most encouraging developments for the M&A market is the continued improvement in lending conditions. Senior debt pricing declined again during the first quarter, and we have now seen two consecutive quarters of meaningful increases in total debt-to-EBITDA multiples available for platform transactions. The last time both deal volume and total debt-to-EBITDA levels increased simultaneously was in Q4 2024.

These trends matter. Lower borrowing costs combined with greater lender willingness to provide leverage improve acquisition economics and expand access to capital. While financing conditions remain below prior-cycle peaks, the trend is positive, creating a more supportive environment for transactions.

A More Complex Economic Backdrop

Canada entered the final quarter of 2025 with softer momentum. GDP contracted by 0.6% in Q4, reinforcing that domestic growth has slowed. For Canadian business owners, that translates into more cautious customer spending and reduced visibility in certain sectors.

In the United States, the dynamic is different but still relevant. Recent wholesale inflation readings came in above expectations, suggesting that pricing pressures remain. A significant portion of tariff costs appears to be flowing through to consumers, and job growth has moderated compared to earlier in the cycle. These factors influence interest rate expectations and broader capital market conditions.

Trade policy continues to introduce variability. Although the Supreme Court struck down the initial tariff framework, broader policy direction remains fluid. What has changed is the response. Buyers and lenders are no longer pausing in reaction to headlines. They are incorporating flexibility into forecasts and transaction structures. Uncertainty is now assumed rather than treated as an exception.

The CVCA recently announced Canada posted a record $56.5 billion in private equity investment through the first nine months of 2025 across 483 transactions, with an average deal size of $117 million, driven by 9 mega-deals, including five above $3.3 billion. It is an impressive headline, but it obscures the underlying reality.  When the 9 deals over $500 million are removed, the mid-market tells a very different story. Through Q3 2025, Canada recorded 474 sub-$500M transactions totalling $5.14 billion, with a YTD average deal size of $10.8 million, the lowest mid-market average compared to any year in the past decade. For context, the 2021 mid-market peak saw $13.8 billion invested, averaging $17.4 million per deal. Even the softer markets of 2023 and 2024 posted higher averages at $12.7 million and $14.0 million, respectively.