Potential Trump tariffs on Canadian mergers and acquisitions could hinder momentum in early 2024.

Businesses in Canada are bracing for potential interruptions in merger and acquisition (M&A) activities due to US President Donald Trump’s proposal to impose a 25 percent tariff on Canadian goods in the early months of 2024. Despite these looming challenges, leaders in KPMG’s Deal Advisory in Canada see the potential for long-term cross-border deal opportunities arising from fundamental changes in trade dynamics.

Amidst the uncertainties surrounding US-Canada trade relations, Marco Tomassetti, the president of KPMG Corporate Finance Inc., noted that companies with exposure to the US market may face reduced appeal. The unpredictability in earnings creates complexities in evaluating businesses and securing deal financing, leading potential buyers to either introduce deal structures that sellers may not accept or adopt a wait-and-see approach before engaging in M&A transactions.

The implementation of tariffs on Canadian goods as per Trump’s directives could spark countermeasures from Canada’s government, potentially showcasing immediate implications on M&A activities. Tomassetti highlighted that this climate of uncertainty might result in delays as stakeholders navigate the impacts of tariffs on future earnings, further dampening valuations and increasing the risk of failed transactions, scenarios that business owners aim to circumvent.

Nonetheless, despite the challenges posed by the tariff landscape, private businesses with minimal exposure to the US market, robust pricing strategies, or service-centered operations continue to attract substantial attention and valuations. Tomassetti pointed out that there is a healthy deal pipeline, with ongoing market transactions receiving significant interest at competitive valuations.

Looking ahead, Neil Blair, the partner and national leader of KPMG Canada’s Deal Advisory, emphasized the potential strategic shifts that could arise from trade modifications, including opportunities for Canadian entities to acquire US-based assets. Blair anticipated a surge in cross-border deals driven by potential trade conflicts, with Canadian firms contemplating strategic purchases in the US to navigate new supply chain requirements anticipated from potential revisions to the Canada-United States-Mexico Agreement (CUSMA). Additionally, he highlighted the evolving political landscape, such as potential alterations in capital gains taxes, as a catalyst for long-term M&A endeavors.

In a KPMG Canada business survey, it was revealed that a significant majority of Canadian CEOs expressed intentions to pursue acquisitions over the next three years, with a notable portion foreseeing substantial deals on the horizon. This proactive stance reflects a collective readiness among industry leaders to navigate the evolving trade climate and leverage strategic M&A opportunities in the face of shifting geopolitical and economic dynamics.