Canadian Mid-Market M&A Review

A thinner market, carried by size

Canadian dealmaking slowed again in the third quarter. Fewer transactions were announced than in any recent quarter, while the deals that did proceed were large, concentrated in energy, power and infrastructure, and backed by buyers with strategic conviction. For owners of mid-market companies the picture is more selective than weak: capital is available, but it is being directed to businesses that can withstand close scrutiny.

Five findings

1. i.Volume fell for a second quarter; value held. LSEG counted 401 transactions with a Canadian party in Q3, after 460 in Q2, which was already the lowest count since at least 2005. Aggregate value rose above the long-run average on a small number of large deals.
2. ii.The slowdown is concentrated below $1 billion. According to Crosbie, the value of deals under $1 billion has declined for two consecutive quarters, from $21.5 billion in Q4 2025 to $14.7 billion in Q2 2026, while mega-deals reached a record.
3. iii.Private equity is deploying, but slowly exiting. Sponsor deal value rose sharply year over year, while the median holding period has reached 5.3 years, building a backlog of sponsor-owned companies that will eventually need buyers.
4. iv.Trade remains the swing factor. The United States declined to extend CUSMA at the July 1 joint review. The agreement remains in force to 2036 with annual reviews, and Section 232 tariffs continue to apply to steel, aluminum, autos and wood products.
5. v.Ottawa turned decisively toward investment. The September 15 Canada Investment Summit produced nearly $500 billion in announced commitments and a permanent Productivity Mega Deduction allowing immediate expensing of most new depreciable property.

Fewer deals, larger cheques

LSEG Data & Analytics counted just 401 transactions involving a Canadian buyer or seller in the third quarter, less than half the historical average and below the 460 recorded in the second quarter, itself the lowest count for any quarter since at least 2005. The value of those transactions was roughly US$68.6 billion, about 16% above the 10-year third-quarter average. The Globe and Mail, citing LSEG, October 2026.

Crosbie & Company, whose quarterly series is the most widely used for the Canadian mid-market, recorded the same pattern in the second quarter: 600 announcements, down 12% from Q1 and the lowest count since Q4 2023, alongside a 51% rise in announced value to $114.5 billion. A record 23 transactions above $1 billion accounted for $99.8 billion, or 87% of the total. Crosbie, Q2 2026 report.

The global market cooled in step. LSEG put worldwide M&A at US$993 billion in the quarter, down 41% from Q2 and the first quarter below US$1 trillion since mid-2025, as the number of deals above US$10 billion fell from 26 to 10. Year to date, global value remains up 28% on 8% fewer deals. Investment Executive, citing LSEG.

Sources: Crosbie Q3 2025, Q4 2025 (via Advisor.ca), Q1 2026 and Q2 2026 reports.

Selectivity at the smaller end

Transactions under $250 million remain the backbone of Canadian M&A by count, at 80% of second-quarter deals with disclosed values, but their share fell six points from Q1. Mid-market count dropped to 173 from 229 and aggregate value to $4.3 billion from $6.8 billion. Crosbie attributes the softness to higher fuel costs, weaker demand and reduced seller appetite, and describes buyers applying greater scrutiny to earnings quality, cyclicality and business-specific risk.

“With fewer deals in the market, they are attracting more attention and stronger competition from buyers.”

Demand has not disappeared. In a KPMG Canada survey of 252 business leaders published in January, 33% said they plan a major acquisition within 18 months, rising to 36% among private and private equity-backed companies. KPMG Canada. Financial sponsors dominate the segment between C$25 million and C$500 million, and private lenders have become a primary source of acquisition financing there, typically offering higher leverage and more flexible structures than the major banks. Dentons.

Deploying with conviction, exiting with patience

Canadian private equity reached US$9.35 billion across 45 announced or closed transactions in the third quarter, with aggregate value up about 86% on Q3 2025, according to Preqin data compiled by Bennett Jones. The increase reflects fewer, larger investments in energy, infrastructure and other real-asset sectors. Persistent valuation gaps continue to delay exits, and the median holding period has reached 5.3 years. Bennett Jones, Q3 2026 PE Briefing.

Sponsors are favouring stable, cash-generative assets with long-term contracted revenue, and are increasingly partnering with strategic operators. Notable third-quarter examples include KKR's C$2.7 billion partnership with Enbridge on the Westcoast pipeline expansion and Morgan Stanley Infrastructure Partners' acquisition of a 47.5% interest in the C$4.6 billion Greenlight Electricity Centre. Measured more broadly, including add-ons and exits, Mergermarket recorded US$30.28 billion of private equity-backed volume across 156 deals in the first half, the second-highest first half on record. Mergermarket, July 2026.

Where buyers are active

Industrials and information technology remained the most active sectors by count in the second quarter, with 126 and 83 transactions. Energy, utilities and real estate generated the largest values at $32.1 billion, $20.5 billion and $16.3 billion. The sharpest movements in count were:

Power and infrastructure

The leading theme for sponsors and infrastructure funds, driven by electricity demand from data centres and energy-security priorities. Apollo also completed its acquisition of KKR's interest in the Pembina Gas Infrastructure joint venture. Bennett Jones.

Health care

Healthcare services deal value in the US and Canada fell 7.3% year over year in the first half, according to PitchBook, but consolidation, carve-outs and add-ons continue, with home and elder care supported by demographics. GSK acquired Canada's 35Pharma for C$1.3 billion. Bennett Jones.

Insurance

Foreign carriers are reassessing Canadian operations, giving domestic insurers a rare chance to acquire scale. Definity's acquisition of Travelers Canada and Wawanesa's acquisition of Everest Insurance Company of Canada are examples. PwC Canada.

Defence and dual-use

The Defence Industrial Strategy, launched in February, commits C$180 billion in procurement by 2035 and targets 70% of defence acquisitions to Canadian industry. Dentons. In September, BDC added $700 million for defence and dual-use technology, and CIBC committed $2 billion in financing to smaller defence-related businesses. Prime Minister's Office.

Capital is available, at a price

The Bank of Canada has held its policy rate at 2.25% since October 29, 2025, most recently on September 2, 2026, with the major banks' prime rate at 4.45%. Its next decision, with a Monetary Policy Report, is on October 28, followed by December 9. Bank of Canada; Ratesopedia. Market commentary ahead of the meeting has been divided: inflation running near 3% argues against easing, while employment fell by a reported 68,000 jobs in September, lifting unemployment to 6.5%. The Rio Times.

PwC expects Canadian real GDP growth of 0.9% to 1.3% in 2026 and inflation of 2.5% to 3.0%, and expects long-term financing costs to remain elevated. PwC Canada, mid-year update. Globally, Reuters attributed the third-quarter M&A slowdown to rising borrowing costs. Debt markets nonetheless remain open: including maple bonds, Canadian corporate bond issuance had already reached a record $165 billion in 2026, according to RBC data. The Globe and Mail.

Canada's largest banks used the September investment summit to announce multi-year financing commitments to domestic businesses: TD $150 billion over five years, Scotiabank more than $100 billion over five years and BMO $70 billion over ten years, across energy, critical minerals, defence, digital and infrastructure. Prime Minister's Office.

Uncertainty abroad, incentives at home

CUSMA and tariffs

At the first mandatory joint review on July 1, the United States declined to extend CUSMA for a further 16-year term. The agreement remains in force until 2036, with annual reviews in the meantime. CUSMA-compliant Canadian goods remain exempt from the broad US tariffs, but Section 232 national-security tariffs on steel, aluminum, autos and wood products apply regardless of origin rules. McMillan; Blakes. Canada's former chief trade negotiator, Steve Verheul, said he did not expect a deal before the US midterm elections, and the Bank of Canada projects GDP will finish 2026 roughly 1.5% below its pre-tariff path. The Hub.

Bennett Jones reports that CUSMA negotiations and tariff escalation weighed on private M&A through the quarter, with small and mid-sized cross-border businesses under the most pressure from higher costs and supply-chain disruption.

The Productivity Mega Deduction

Announced on September 15, the measure provides permanent immediate expensing for most depreciable property, and for Canadian development expenses, acquired on or after that date. Exclusions include certain buildings, goodwill, some limited-life intangibles and certain used or foreign-assembled vehicles, and property must generally represent a new investment in Canada, in some cases from an arm's-length party. The Department of Finance estimates Canada's marginal effective tax rate on new business investment will fall from 13% to 6.4%. Bennett Jones. The same summit produced nearly $500 billion in announced commitments, including the $50 billion Maple Fund launched by CPP Investments and Brookfield. Prime Minister's Office.

What this means for owners considering a transaction

The following is Lark Street Capital's view, drawn from the data above and our own mandates.

1. IQuality is being priced; preparation is the lever. With buyers scrutinizing earnings quality, an independent quality-of-earnings review, clean monthly reporting and a defensible normalization of owner costs now matter more than they did in 2021.
2. IIQuantify tariff exposure before a buyer does. Document CUSMA compliance, US revenue and US content, and any exposure to Section 232 inputs. A clear answer shortens diligence and narrows the discount buyers apply to uncertainty.
3. IIIExpect structure as well as price. Earn-outs, vendor financing and rollover equity remain the usual tools for bridging valuation gaps. Advisers entering 2026 expected continued emphasis on creative structures to manage risk. Norton Rose Fulbright. The headline multiple is only one term among several.
4. IVMap the sponsor universe carefully. Platforms approaching the end of long holding periods have strong reasons to complete add-ons. Equally, a sponsor-owned competitor coming to market can crowd a process; timing should account for both.
5. VDo not wait for complete clarity. With CUSMA now subject to annual review, trade uncertainty is likely to recur each year rather than resolve once. Owners who prepare confidentially now can move when a strong buyer appears, rather than when the headlines settle.

What to watch in the fourth quarter

Bennett Jones expects the current bifurcated market to persist into year-end, with sponsors directing capital to high-quality assets in energy, infrastructure, defence and technology while broader activity remains subdued. We share that view, and expect the strongest outcomes in the coming quarters to go to owners whose businesses are prepared before they go to market.

Independent, partner-led M&A advisory for founders, families and owners of Canadian companies, from Vancouver and Toronto. For a confidential conversation about your company:

1. LSEG Data & Analytics, via The Globe and Mail, October 2026.
2. Crosbie & Company, Canadian M&A Report Q2 2026, August 2026.
3. Crosbie & Company, Q1 2026 report, May 2026.
4. Crosbie & Company, Q3 2025 report; Q4 2025 via Advisor.ca.
5. Bennett Jones, The Q3 2026 PE Briefing, October 7, 2026 (Preqin data, US$).
6. Bennett Jones, The H1 2026 PE Briefing, June 2026.
7. Mergermarket, Dealspeak North America, July 24, 2026.
8. Investment Executive, Global M&A strong in 2026, citing LSEG, October 2026.
9. PwC Canada, 2026 mid-year Canadian M&A update, June 2026.
10. KPMG Canada, business leader survey, January 2026.
11. Dentons, Canadian M&A outlook 2026, February 2026.
12. Norton Rose Fulbright, What does 2026 have in store for M&A in Canada?, January 2026.
13. Bennett Jones, Productivity Mega Deduction, September 21, 2026.
14. Prime Minister of Canada, Canada Investment Summit release, September 15, 2026.
15. McMillan, CUSMA after the July 1 review; Blakes, tariffs timeline.
16. The Hub, CUSMA renewal deadline passed, July 2, 2026.
17. Bank of Canada, policy interest rate; Ratesopedia; The Rio Times, October 2026.