An inside look into the state and outlook of M&As in Canada

Fasken partner, Jonathan Conlin, shares insights on this year’s theme and trends and predictions for 2025

It’s never too early to picture what a merger and acquisition (M&A) exit could look like for your startup — whether you’ve just launched or are focused on scaling.

A strategy can act as a compass to chart a clear path to growth and equip you to move quickly when opportunity knocks. But keeping your finger on the pulse of the state and outlook of M&As is key to maintaining an advantage.

To get the latest insights, the Vancouver Tech Journal sat with Jonathan Conlin, a partner at Fasken, B.C.’s largest law firm ranked the No.1 legal advisor for M&A transactions in Canada in several categories.

Conlin offers an inside look at today’s landscape and what 2025 could look like, including which sectors are gaining momentum.

How has the landscape of M&A in Canada evolved post-COVID?

The theme we are seeing in the post-COVID M&A landscape is a ‘return to normal’. 

In COVID, deals were being done in record time and with record-breaking valuations. In the last 18-24 months, we’ve seen many buyers undertake a slower, more methodical diligence and closing process in line with the pre-COVID era. 

I suspect this is in part due to the lower competitive tension in many processes, but also to increased pressure buyer teams are feeling to justify acquisition to their own boards. 

Buyers are also willing to walk away from transactions if they don’t see targets maintaining strong trends during the exclusivity period, which can be disappointing for sellers who are investing significant time and resources into the process. 

Sellers with unresolved governance and corporate issues are also having a much harder time moving processes forward. As a result, we are coaching our clients to stay ‘acquisition ready’ even before they formally start looking at a sale process.

Buyers are prioritizing sustainable growth and profitability. For the lucky few in that category, competition for deals remains incredibly strong, given the amount of capital still in play looking to be deployed. For example, I recently assisted Zafin in its successful sale to Nordic Capital.

The COVID era was very hot for venture financing. How has this impacted M&A post-COVID?

Many companies raised growth rounds from VCs in that same hot market during COVID. 

We’ve now seen how this can create a challenge for companies to meet their post-financing growth targets and find a sale transaction acceptable to their investors. 

So, many founders and management teams are heads down building and growing their company rather than preparing to go to market, as they know the current bid-ask spread is too large to invest significant time in a sale process in 2024.

From where we sit, our sense is that the second half of 2024 will be stronger than the first half, particularly if interest rates start coming down. We are also cautiously optimistic about 2025.

Is all M&A as simple as A company buying B company? Are there different ways to structure deals that give the acquired company independence or provide the involved parties flexibility in how they operate and integrate?

Definitely not. In many cases, particularly when a financial buyer is at the table, the expectation is that the founders or key management team will maintain a significant equity stake to ensure alignment with the go forward success of the business following acquisition.

Fasken led the Canadian market for technology M&A in 2023 by deal volume and size, and when we look at the deals we’ve helped our client close, and those in process currently, this trend remains very strong — even for strategic buyers. 

This type of structure can also help parties overcome challenges in settling valuation. In a similar vein, we’ve also noticed an increase in the use of earnouts and non-cash consideration, with buyers emphasizing the performance of the business post-closing to validate seller expectations on purchase price. 

It’s very important for seller teams to be aware of the tools available when negotiating their strategic transactions, as there can be significant downstream upside in using some of these structures. 

On the other hand, it’s equally important for sellers to be protected as the terms and conditions around some of these structures can be quite complicated and leave seller teams exposed if they don’t receive good advice.

How have reductions in valuation multiples created opportunities for potential targets in M&A?

The initial reaction we see from some of our clients is disappointment at the current multiples being offered by potential acquiror. However, in certain cases, this can present a compelling opportunity for those sellers. 

For example, we’ve completed several transactions where a large acquiror used its own equity as purchase price for the target, and the acquiror was able to convince the seller group that such acquiror equity was also being undervalued and therefore significant upside existed for the combined business — a situation where the tide had lowered both boats. 

This is just one of many examples of how deal teams are getting creative to keep transactions moving in today’s environment.

What sectors are experiencing momentum right now in the Canadian technology M&A market?

We expect the climatetech and agtech sectors to remain quite hot through 2024. 

We are seeing strategic acquirors from legacy industries, such as mining, become quite active. This is perhaps due in part to the emphasis large companies have on ESG, which has become table stakes for these businesses across jurisdictions. 

In the enterprise SAAS space, tools that reduce costs within large organizations are also at a premium right now. 

Legaltech is also a space we are seeing strength in, both with our own clients and as Fasken deploys cutting-edge tools to service our client base more efficiently. I’m proud of the work we’ve recently done to roll out Walter across our technology group for our startup clients.

Finally, you cannot answer this questions without mentioning AI. However, most of the momentum we are seeing in AI is in the venture financing side, as investors attempt to pick who the ultimate winners will be in various sectors.

On this basis, I expect M&A activity for AI companies to be quite strong in 2025 and beyond as some of those companies achieve scale following these large financings.

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