Management Buyouts and Leveraged Acquisitions: How to Seize Opportunities in a High-Interest Environment?

Authors: Karim Safi and Roy Cheung

This article follows a panel hosted by Ernst & Young and Réseau Capital on May 6, 2025, on the topic of “Business Takeovers,” during which Jordan Di Corpo (Owner and President of L’Amour du pain bakery), Julien Miller (Owner and Co-President of Allard et Emond), and Nicolas Gauthier (Owner and President of Jas Filtration) shared their experiences as business buyers. Their insights form the foundation of the reflections developed below.

In times of economic uncertainty, many Québec business leaders are questioning whether it still makes sense to pursue business takeovers or leveraged acquisitions. Yet real opportunities are emerging—provided one fully understands the rules of the game in this evolving transactional landscape.

Business Takeovers: A Strong Trend and Strategic Opportunity

Business takeovers, or the acquisition of existing businesses, are currently among the most significant economic dynamics in Québec. According to a study by the Centre de transfert d’entreprise du Québec (CTEQ), approximately ‘’24,000 businesses could be transferred or sold in 2024, compared to 15,000 in 2023—a significant 60% increase’’. This phenomenon is explained by the aging of business owners as well as the growing interest of entrepreneurs and executives looking to take over operations.

These types of acquisitions offer several advantages for buyers:

• An existing customer base
• Proven operational processes
• A brand often well established in the market

However, business takeovers are not without challenges. Too often, buyers take an improvised approach—without a clear succession plan, structured legal support, or appropriate governance strategy. The result: friction during the transfer, disagreements between parties, and in the worst cases, failure of the transaction.

An Evolving Economic Context: Interest Rates Redrawing the M&A Landscape

Since 2022, successive hikes to the Bank of Canada’s key interest rates have profoundly changed the M&A environment, particularly for mid-sized companies in Québec. These increases have had a direct impact on financing costs, making debt-financed acquisitions—especially management buyouts (MBOs)—more expensive and complex.

But every constraint also creates opportunity. For well-established business leaders or strategic buyers, this environment offers new levers for negotiation, structural adjustments, and legal options that should be examined in light of today’s economic realities.

1. Fewer Competitors, More Bargaining Power

The rising cost of capital has deterred many potential buyers, especially those relying heavily on financial leverage. For strategic buyers—including management teams aiming to acquire the business—this means a less competitive environment, and sometimes more favorable valuations.

In practice, this often translates into:

• Greater openness from sellers to deferred payments (e.g., earn-outs)
• Increased tolerance for price adjustment clauses based on future performance
• Opportunities to negotiate hybrid structures combining debt, equity, and vendor financing

2. Preparing for a Successful Business Succession

Successful management buyouts or family successions depend on proper preparation. Key elements to anticipate include:

• Objective business valuation: Beyond the numbers, it’s crucial to understand human, operational, and legal factors.
• Structured transition planning: A gradual, scheduled transition eases changeover.
• Progressive involvement of the successor: This ensures knowledge transfer and preserves relationships with clients and suppliers.
• Appropriate legal structuring: Choice of acquisition form (share vs. asset deal), shareholder agreements, payment terms, and management of personal guarantees—all require sound legal framing.
• Professional support: Lawyers, tax experts, accountants, and business transfer advisors are strategic partners in avoiding costly mistakes.

Raising awareness among current owners and potential buyers about these best practices is essential—not only to secure transactions but also to safeguard the continuity of Québec’s predominantly SME-driven economy.

3. Rethinking Financing Structures

In a high-interest rate environment, optimizing the financing structure is crucial. For executives aiming to acquire or transfer ownership to employees or partners, this often involves:

• Greater involvement of private lenders or specialized mezzanine debt funds
• Use of non-traditional financing sources, such as worker cooperatives or regional development capital corporations
• Incorporation of flexible legal clauses to align repayment with actual business performance

A specialized lawyer can help frame these contractual terms to minimize personal risk and secure financing commitments.

4. Governance and Shareholder Agreement Impacts

Increased debt financing also affects post-transaction governance. Lenders often require:

• Oversight rights on strategic decisions
• Strict financial covenants
• Enhanced disclosure obligations

It’s essential to structure shareholder agreements and stakeholder conventions to accommodate these requirements without compromising operational flexibility. These documents become vital tools for stability in volatile economic conditions.

5. Taxation: A Lever to Optimize

Transaction taxation is also impacted. Interest deductibility, thin capitalization rules, and criteria for capital gains exemptions on eligible shares must all be reviewed in light of each proposed structure.

Clear legal advice can make a crucial difference in optimizing transaction architecture.

Conclusion: A Timely Opportunity for Well-Advised Strategists

While high interest rates complicate certain operations, they also create opportunities to structure more resilient, sustainable, and strategically aligned transactions. For Québec business leaders, success lies not in waiting for perfect conditions, but in surrounding themselves with the right partners to transform today’s challenges into strategic advantages.

Considering an acquisition or business transfer? Our lawyers can help turn today’s constraints into springboards for a successful transaction.