2026 M&A Outlook: Valuations, Buyers, & Deal Activity

Capital West, a leading transaction advisory firm in Western Canada, expects a strong year for Canadian mid-market M&A in 2026, with high-quality mid-market businesses continuing to receive attractive valuations in well-run, competitive sale processes.

The momentum is expected to be driven by buyer and seller readiness to participate in the M&A market again, despite ongoing macroeconomic conditions. However, certain trends seen in 2025 are expected to continue, including more intensive transaction due diligence and negotiations, and more complex transaction structures to bridge valuation gaps and share risks and uncertainties between buyers and sellers.

Key M&A Drivers

Historic Levels of Available Capital

• Private equity funds continue to raise new funds and dry powder in these investment vehicles remain at historic levels; over $2 trillion in North America alone 
• Publicly listed strategic buyers are also actively pursuing acquisitions as they trade at historically high multiples and are supported by strong balance sheets with additional leverage capacity

Aging Demographics & Succession Planning

• An aging demographic and succession requirements in family-run enterprises suggest a massive wave of business sales and transitions over the next decade in Canada – an estimated 75% of business owners will complete a transaction to exit their business in that timeframe 
• In its Succession Tsunami report, the Canadian Federation of Independent Business estimates that over $2 trillion in business assets could be transferred by 2033 because of owner exits, with most of that activity occurring in the $5 – 50 million deal size range (i.e. the mid-market)

Increasing Private Equity Exits

• Given economic uncertainty and higher interest rates over the past few years, private equity funds continue to delay exits, completing more add-on acquisitions and focusing on strategic value enhancing initiatives before an eventual exit 
• The median holding period for private equity backed portfolio companies has reached 5.8 years, the longest since tracking began in 2000 
• This dynamic is not sustainable, and we expect renewed, albeit selective, exit activity from private equity funds in the next 12-18 months, increasing M&A volumes significantly

Federal Budget Investment Priorities

• The Canadian federal budget announced in November 2025 included several nation building priorities with promises of investment/spending in areas like defense, energy, critical minerals, AI, and affordable housing. The nation-building agenda is expected to be a catalyst for M&A activity in 2026 §In a recent survey of business leaders across 14 sectors, 33% plan to make a major acquisition in the next 18 months to take advantage of potential growth opportunities announced in the federal budget. Among private or private equity-backed companies, an even higher 36% are planning an acquisition

Consistently Low Inflation & Lower Interest Rates

• Inflation has steadily declined since its peak in 2022 and is showing signs of remaining near the Bank of Canada’s long-term target range of 2% 
• Four interest rate cuts by the Bank of Canada decreased the overnight lending rate to 2.25% by the end of 2025; favourable financing conditions at lower cost will assist buyers in pursuing acquisitions

Canadian Businesses Attract International Buyers

• International buyers continue to be particularly interested in Canadian businesses despite economic uncertainty and US tariffs
• US groups, in particular, are now the largest buyer group compared to other international buyers and Canadian buyers, based on Capital IQ data

Valuations and Deal Activity

• Deal activity rebounded in the second half of 2025 as transactions became more deliberate, structured, and quality-driven in the face of economic uncertainty
• While the total number of mid-market deals completed in 2025 was slightly lower than 2024, valuations have remained robust

As one of Western Canada’s most active M&A advisory firms in the mid-market, Capital West helps entrepreneurs plan, negotiate, and complete major transactions such as business sales, acquisitions, and strategic financings. We have successfully closed transactions totaling $10 billion for clients such as lululemon, Aritzia, Canfor, A&W, The Keg, and Harbour Air, among many others. With the expected momentum driving M&A activity, it is never too early to consider your business exit strategy. Reach out to one of our partners for a discussion on how to evaluate your options for a potential transaction.