Canadian Tech Mergers and Acquisitions: Future Outlook for 2025
Allan Goodman, a partner at Goodmans LLP, recently spoke with Lexpert to talk about the resurgence of tech M&A activity. He shared insights into what is fueling this growth, where the opportunities and challenges lie, and what we can expect in the tech space as we move into 2025.
According to Goodman, one of the main reasons behind the surge in tech M&A activity is the decline in available venture financing, which started to decrease in early 2022. With fewer options for funding, companies turned to M&A as a means to continue growing. Additionally, private equity firms have become increasingly active in acquiring technology companies, further driving the uptick in activity.
AI and cybersecurity businesses have been particularly sought after in recent deals, as strategic buyers look to bolster their offerings with AI capabilities and strengthen their defenses against cybersecurity threats.
Tech valuations reached their peak in 2021 when many investors were eager to invest in digital solutions during the pandemic. However, valuations began to decline in 2022, prompting businesses to shift their focus towards profitability. This shift made many companies more attractive to potential buyers, leading to more alignment between buyers and sellers on valuations.
Regulatory policies, especially antitrust considerations, have been impacting tech M&A transactions. In the US, the Hart-Scott-Rodino Act requires more detailed information, extending approval timelines. Canada has also seen longer review periods due to heightened regulatory scrutiny, especially for deals involving sensitive data. Antitrust authorities in both countries are collaborating with international counterparts to ensure consistent enforcement of antitrust laws.
Cross-border M&A transactions present challenges for Canadian tech companies, particularly when dealing with US counterparts. Navigating different privacy and tax laws, as well as currency fluctuations, can complicate deals. However, these transactions also offer opportunities for Canadian companies to access the larger US market, acquire skilled talent, and access more significant capital pools.
Advancements in AI and other emerging technologies are influencing M&A strategies and valuations in the tech sector. AI tools have improved the due diligence process, helping buyers identify risks and potential targets more efficiently. Companies with advanced AI capabilities are often valued higher due to their potential to enhance the buyer’s product offerings.
For startups looking to position themselves as attractive acquisition targets, Goodman advises them to “Think Globally” and focus on developing scalable growth beyond Canada’s borders. By adopting this mindset and strategy, emerging tech companies can enhance their appeal to potential buyers and position themselves for successful acquisitions.
