First Quarter 2025 Review – What to Expect in M&A in Canada for 2025: Impact of New U.S. Tariffs and Economic Dynamics

Authors: Maxime Cloutier and Valerio Arcobelli

The mergers and acquisitions (M&A) landscape in Canada for 2025 is undergoing significant shifts, influenced by recent U.S. trade policy changes, economic recovery efforts, and a heightened focus on sustainability. Trump’s initial 10% tariff on Canadian energy product, 25% tariff on all other Canadian imports, both effective as of March 4, 2025, as well as the additional reciprocal 25% tariff imposed on Canadian automobile imports, effective April 3, 2025, have introduced a new layer of complexity to cross-border trade and investment.

Impact of New U.S. Tariffs on Canadian M&A Landscape

The imposition of these tariffs is expected to have significant effects on Canadian businesses and their M&A strategies, such as:

• Increased Costs and Profitability Concerns: The 25% tariff on Canadian goods and automobile imports entering the U.S. is anticipated to raise production costs for Canadian exporters. This increase may reduce profit margins and affect the valuation of Canadian companies and may lead buyers to renegotiate the purchase price of Canadian companies or completely withdraw from potential transactions.
• Strategic Realignments: While the effectiveness of this strategy remains to be confirmed, Canadian companies may seek M&A opportunities to mitigate the impact of tariffs, such as acquiring U.S.-based companies to establish manufacturing operations within the U.S., thereby attempting to circumvent the tariffs and maintain competitiveness.
• Supply Chain Reconfiguration and Client & Customer Diversification: To adapt to new trade barriers, Canadian companies might look to acquire businesses that offer alternative supply chain solutions or opportunities to diversify their client and customer base, in order to reduce reliance on U.S. business partners.

Strategic Considerations for Canadian Businesses

In navigating this complex landscape, Canadian businesses should consider the following strategies:

• Diversification of Markets: Expanding into non-U.S. markets can reduce dependence on the U.S. and mitigate tariff-related risks.
• Vertical Integration: Acquiring U.S. suppliers or distributors can help control costs and ensure smoother operations amidst changing trade policies.
• Enhanced Negotiation Leverage: Understanding the nuances of the new tariffs can provide Canadian companies with leverage in negotiations, both domestically and internationally.

Insight

Maxime Cloutier, Head of the M&A Department at KRB Lawyers Inc., observes, “While the recent U.S. tariffs, or threat of tariffs, create uncertainty, the current circumstances may also create opportunities for businesses to reassess their M&A strategies, and consider acquisitions that offer both immediate relief from tariffs and long-term growth opportunities.”

Conclusion

The introduction of significant U.S. tariffs on Canadian goods necessitates a re-evaluation of M&A strategies for Canadian businesses. By proactively seeking strategic acquisitions and market diversifications, companies can better navigate the challenges posed by these new trade barriers and position themselves for sustained success in a shifting economic landscape.

To learn more about our M&A practice and how we can help, visit www.krblaw.ca/expertise/