Report suggests that the benefits of deal making could be greater if regulation allowed
Improving economic conditions with easing inflation and lower interest rates should boost mergers and acquisitions in Canada in 2025, according to a new report.
But the analysis of 2023 data from Sapling Financial Consultants highlights the potential barriers to the full benefits of increased M&A due to the areas of the economy that are shielded from competition such as elements of the energy sector, telecoms, finance and insurance, and retail groceries.
The report finds that when limitations on the movement of goods and services across provincial lines are included, almost 31% of Canada’s economic activity is affected by restrictions on competition, although this is down from more than 35% in 2017.
With restrictions on foreign investment, government interventions, cross-border trade restrictions, and state owned monopolies, the GDP of industries that are highly sheltered from competition is approximately 20.6%, down from 22.3% in 2017.
"However, when factoring in broader restrictions such as interprovincial trade barriers, occupational licensing, and healthcare regulations, nearly one-third of Canada’s economic activity remains affected
by competition-limiting policies,” said Rob Hong, co-founder & CEO of Sapling Financial Consultants. “This underscores the critical need for reforms to reduce these barriers, foster innovation and unlock the full potential of our economy.”
Impact on consumers and jobs
Among the industries set to benefit from increased investments and modernization in 2025 are telecoms, utilities and renewable energy, but the report calls on policymakers to ensure that restrictions on competition is addressed to avoid consumers being adversely impacted through rising prices due to concentrated dominance.
For example, those in rural areas may face higher prices for telecoms and broadcasting due to limited choice unless foreign investment restrictions are eased.
Jobs may also be impacted by restricted competition, with some industries consolidation potentially resulting in job losses or weakened job creation, although in sectors like utilities and renewable energy, M&A activity could drive demand for skilled labour, particularly in areas like grid modernization and sustainable energy projects, partially offsetting job losses in other areas.
