CEO and president of CBV Institute highlights how tariffs could affect M&A activity, despite strong forecast for growth
M&A activity is expected to increase throughout 2025 and into next year, according to recent survey findings released from the Chartered Business Valuators Institute (CBV Institute).
But with less than a month to go before tariffs are potentially taxed onto Canada’s economy, could this dissuade CBVs and pension funds who plan to participate?
Dr. Christine Sawchuk is hesitant on whether it will have a significant impact.
“If we were talking [last] Friday, it'd be a slightly different conversation,” president and CEO at the CBV Institute said. “There's a lot of uncertainty as to how tariffs will affect the value of businesses but it's going to impact cross-border activity both ways.”
“The survey had already said that there were expectations for higher activity of acquisitions of distressed companies in 2025,” she said. “We think tariffs will impact that. We’re going to see an increase, unfortunately, in distressed companies.”
Sawchuk emphasized the length of time tariffs stay in place will ultimately dictate the impact.
“Generally, if tariffs last for a handful of months, you're not going to see any major long-term changes,” she said. “But the longer that plays out, obviously, the bigger the impact that’ll have on that specific segment.” Despite expectations for increased M&A activity in 2025, among those surveyed in the Institute’s 2025 M&A Outlook Survey, only 37 per cent anticipate an increase in deal size. Meanwhile, respondents are split down the middle and forecast deal sizes to remain steady, much like predictions from 2024.
“Last year was a relatively soft year in terms of M&A. There's a lot of dry powder that needs to be used so they’re encouraged in that way,” noted Sawchuk. Additionally, Sawchuk points out that a significant proportion of Canadian businesses are privately owned, and many of these owners are at an age where they are considering transitioning out of ownership. This is where pension funds stand to benefit.
“We’re seeing lower costs of borrowing and our survey respondents expect to see an increased valuation multiples over the next 2 years, which indicates a ripe market for pension fund buyers, particularly in private equity,” she said, pointing to the data supported by survey respondents.
24 per cent felt that there would be increased pension funds buyers in the next 1-2 years compared to 2024, with 52 per cent feeling the level of activity from pension fund buyers would be about the same as 2024, said Sawchuk.
“Pension funds are generally long-term investors with strong liquidity. This gives them the ability and flexibility to withstand investment volatility, which makes them prime purchasers of private equity,” explained Sawchuk.
“Private equity offers potential higher returns than we’d see on the public market, in return for the assumption of some risk and volatility.”
From a business perspective, tariffs could impact cash flows and operating risk. But every industry will be impacted differently, explained Sawchuk.
Should tariffs be pared down and drop from the proposed 25 per cent level, Sawchuk expressed no concern. It’s only if they stay at that level or increase will more distressed deals take place.
“Tariffs are going to impact not only the cross-border purchasing, but also domestic purchasing as the companies responds to what's going on. Unfortunately, it'll impact consumers on both sides of the border, which will impact cash flows, said Sawchuk, noting that organizations tend to look at a company's forward looking cash flows.
“We can't focus on what's happening right now. We have to focus on what may happen three or five years down the road. There's a lot of uncertainty today in terms of what's going to happen and how the tariffs will impact companies in the medium or long run,” said Sawchuk.
“It might change the nature of the transactions and make for more complex transactions, in terms of financing or the parties involved, given there will be a lot more distressed companies but I definitely think we'll continue to see that higher M&A activity,” she added. Interestingly, cross-border activity is also expected to increase, according to CBV’s survey findings, though that comes with its own challenges, particularly around the value of the Canadian dollar.
“The weak Canadian dollar, even weaker today, may seem that Canadian companies would be an attractive target for American buyers. But what the American buyers have to realize is that the Canadian cash flows are going to be in Canadian dollars. You have to adjust for that impact.”
As for the nature of M&A transactions in 2025, Sawchuk said these aren't mega deals but rather more mid-market.
“They’re smaller deals, they're easier to close and higher activity because there's more rapid closing. Not extremely rapid, but quicker closings with more activity,” she said, highlighting that industrials, healthcare, technology, and energy sectors stand to benefit the most from M&A activity.
“There's a lot of opportunities to spend the money and it's just a matter of moving on it this year,” said Sawchuk.
