Why are Canadian firms cutting back on M&A?

A generally positive outlook on the Canadian and global economies is not enough to drive deal intentions among Canada’s business leaders.

Although almost three quarters expect an improvement in corporate earnings and 81% say M&A is improving, just 46% intend to actively pursue deals in the next 12 months according to the EY Global Capital Confidence Barometer.

"Confidence is there, but deal intentions are lacking," says Doug Jenkinson, Partner in EY Canada's Transaction Advisory Services practice. "Canadian executives are taking stock after recent record levels of M&A activity. Unachieved synergies in recent transactions and rising geopolitical uncertainty is pushing deals down the boardroom agenda for the time being."

More than half of Canadian respondents (53%) say they achieved lower synergies than expected this year and are taking action by starting integration planning earlier than usual and setting more aggressive targets to maximize value in the future.

"Realizing synergies and optimizing integration can mean the difference between a good and a bad deal," says Jenkinson. "Most executives value synergies at about a third of the total deal value. That's why it's so important that businesses invest in the right corrective measures to help them achieve the synergies identified when the deal was struck."

Regulation, uncertainty weighing
Executives are also wary of regulatory, geopolitical, and policy uncertainties with 19% saying trade and tariff policies are making them reconsider acquisition targets.

"The shift from NAFTA to USMCA is on the minds of executives, and many are waiting for more clarity before firming up deal plans,'' says Jenkinson. "It's an opportune time to invest in existing operations and strengthen core competencies in order to act quickly once the dust settles."