2026 Private Equity Outlook Webinar - Top Ten Takeaways

In 2025, the Canadian private equity (PE) market endured another year of geopolitical uncertainty and economic volatility that began with unprecedented and continuously evolving trade dynamics with Canada's largest trading partner. Despite such challenges, PE activity remained stable, with solid deal volume and continued fundraising appetite, demonstrating the sector's structural resilience and market participants' adaptability to evolving macroeconomic conditions.

Takeaway 1: Resilience Amid Shifting Conditions

Numbers for 2025 are matching deal count with 2024 levels, indicating continued resilience across Canadian PE activity. The first three quarters of 2025 have yielded an aggregate deal value of nearly $42B, representing an increasing of 18% compared with the same time period in the prior year. 2025 also showed considerable recovery in the amount of fundraising by Canadian PE firms when compared to 2024, although still below the record fundraising year in 2023. The B2B sector led PE activity by deal count and value, with this sector also seeing the most number of exits.

Large cap transactions in particular had a larger influence on the market, with the number of deals valued over $2.5B matching the same number as 2024, despite mid market and smaller transactions moderating relative to the prior year. Add-on transactions continued to comprise the greatest share of PE activity in 2025 since 2023, representing two thirds of buyout deals as of November 30, 2025. Although add-ons remain an important part of sponsor strategy, they accounted for just shy of 10% of Canadian buyout activity by value, indicating the dollar value of the Canadian buyout market continues to be dominated by larger standalone transactions.

Takeaway 2: Digital Infrastructure Investment

As novel technologies continue growing at unprecedented rates, there is considerable upward pressure on the need for digital infrastructure to meet the growing demand for computing power and data storage. Direct investments in data centres will continue to increase, as national security and data sovereignty concerns prompt more onshoring of digital infrastructure. Investment in adjacent infrastructure such as power generation, transmission and fiber optic and wireless networks will also see increased demand for capital.

Having a well-developed digital infrastructure is increasingly being treated as a strategic asset in Canada, and as such, opportunities present themselves to sponsors who can deploy capital strategically by demonstrating how projects will achieve and catalyze Canada's national security and data sovereignty objectives. In this environment, the federal government will act both as regulator and enabler, as it looks to actively enter into MOUs with different proponents for various pieces of digital infrastructure. Projects that can demonstrate meeting power, capital and data sovereignty requirements may accordingly benefit from improved long term execution risk despite the increased regulatory scrutiny.

Takeaway 3: Aligning Capital with Government Initiatives in Defence Investment

Although the appetite for defence-focused companies is not entirely novel, the changing geopolitical environment has made defence spending a more prominent policy objective of the Canadian government, and PE interest in this sector is consequently growing. Internationally, there is increased pressure from NATO for member nations to commit up to 5% of their GDP to defence spending. Canada is responding to meet those financial commitments by allocating over $80 billion to the defence budget over the next five years. The Business Development Bank of Canada has announced $4 billion in support of Canadian companies across the defence and national security sectors. Defence technology investment in particular saw a fourfold increase in investment as of August 2025 compared to 2022.

The federal government also recently announced the creation of the Bureau of Research, Engineering and Advanced Leadership in Innovation and Science (BOREALIS) to advance development of technologies for defence and national security objectives, and it has also supported defence-specific accelerators such as New Brunswick's Vimy Forge. By treating defence and security infrastructure as economic necessities, the federal government is introducing greater predictability in a sector that has normally lacked it. Previously, many institutional investors specifically avoided or opted out of investing in this sector in side letters to private equity fund limited partnership agreements. Now, many such investors are looking to waive or amend such broad exclusions and, to the extent they wish certain exclusions to remain, investors are distinguishing between weapons manufacturing and defence infrastructure more broadly, such as software, artificial intelligence, dual-use technologies and cybersecurity.

Takeaway 4: PE Secondaries Becoming More Mainstream

While 2025 proved to be a record year for secondary transactions, we expect 2026 to be even better. With distributions to investors below historical levels and continuing challenges with M&A and IPO exits, secondaries offer a welcome source of liquidity in a liquidity-constrained market. Secondaries also continue to gain market acceptance, with limited partners increasingly turning to secondaries as a portfolio management tool and general partners using continuation funds to hold on to trophy assets longer. More sponsors are launching and growing secondaries strategies. We expect these and other factors to combine to propel secondary transaction volumes to new heights in 2026.

In this active secondaries environment, market participants should be prepared. In the context of LP-led secondaries (purchases and sales of interests in private equity and other funds), sponsors will be asked to consent to LP transfers and should consider how they will respond to requests for tax certificates, transfers not on quarter end and side letter requests, being mindful of most favoured nations considerations. Sellers should confirm the transfer process, be in touch with the sponsor early, and watch out for any rights of first refusal in the limited partnership agreement of the fund. Buyers should understand the factors impacting valuation and address those in diligence and/or in the purchase and sale agreement, and non-Canadian buyers should consider how they will invest in any fund that is structured as a Canadian partnership.

Takeaway 5: Take-Privates are Taking Hold

While deal volume was relatively consistent in 2025 compared to 2024, the largest deals represented a greater proportion of deal value, with the top ten deals representing 60% of the total deal value. PE firms were buyers in 13% of deals in 2025 while representing slightly over 20% of overall deal value, while strategic bidders represented the majority of deal volume. That said, all deals by PE firms were notably structured as all-cash transactions, and nearly 80% included a management rollover, while offering on average a premium that is 8% higher than premiums offered by strategic bidders. Management rollover structures also tended not to be a feature of deals attributable to strategic bidders.

Metals and mining, technology, and energy and power sectors were the most active target sectors by deal count. Nearly one third of all deals involving a PE firm were in the technology sector, and PE firm bidders represented over 40% of overall deal volume of tech take-privates. While the vast majority of take privates continued to be friendly transactions with high success rates following announcement, the growing imbalance between take privates and limited IPO activity illustrates a growing contrast between the supply and demand for public and private capital.

Takeaway 6: Emerging Companies Continue Seeking Emerging Sources of Capital

Participation in corporate venture capital (CVC) has tripled since the early part of the decade across all sectors. Due in part to a limited IPO window, private companies continue to raise significant amounts of capital without accessing public markets, thereby keeping private companies private for longer periods of time. However, CVC should be seen as a supplement rather than replacement to the traditional VC model, as CVC investors tend to participate as minority investors alongside institutional VC investors.

There are two main types of CVC investors: (1) VC arms of strategics, which operate akin to a single LP fund where the strategic is the LP; and (2) pure strategic investors where a corporate arm makes direct investments through their business development function. The former tend to leverage internal knowledge of a business or sector to generate returns for the corporate parent, whereas corporate investors tend to be acting more strategically to stay on top of innovation in the marketplace and maintaining a healthy acquisition pipeline. Depending on what the ultimate objectives of a corporate investor are, other minority investors should be mindful that their interests may not always be aligned, thereby potentially introducing additional transactional risk. Potential acquirors should be satisfied that CVC investors cannot block proposed transactions and evaluate how much of a company's know-how and intellectual property may have filtered up to the strategic investor.

Takeaway 7: Diversification as a Path to Resilience Amid Trade Uncertainty

Geopolitical uncertainty, especially from Canada's largest trading partner, will continue to be the theme of 2026. For companies in industries most exposed to and sensitive to tariffs, diversification of suppliers will remain key in bolstering resilient operations and reducing material valuation risk amidst such an unpredictable trading environment. Organizations are exploring nearshoring opportunities and diversifying supply chains with other trade partners like Mexico, the European Union, and several countries in the Middle East, including Qatar and the UAE. Strengthening Canada's relationship with Mexico comes at a critical time as CUSMA is set to be formally renegotiated amidst the backdrop of more than a year of continuously changing trade policy by the Trump administration.

In addition to CUSMA's renegotiation later this year, the US Supreme Court is also expected to decide whether President Trump had valid authority to impose such sweeping tariffs. If found to be unauthorized, then this would result in the US government being required to refund hundreds of billions of dollars in unlawfully levied tariffs back to importers. Such a decision could have considerable impact on reducing input costs in integrated sectors like the automotive industry, although it remains to be seen whether and how such refunds would be initiated by the current administration.

Takeaway 8: Competition and Minority Investments

Canada is following in the footsteps of US antitrust agencies' increased scrutiny of minority investments. In Canada, the acquisition of less than a majority of voting shares can constitute a reportable transaction under the Competition Act, triggering an HSR-type merger control process, if financial reporting thresholds are also met. Minority investments of more than 20% of a public company or more than 35% of a private company or partnership, or any further investment over these amounts that subsequently exceeds 50%, can trigger the mandatory review threshold.

Minority investments that result in the investor or its limited partners having a “significant interest” (generally considered to be 10% or more) in a competitively overlapping business can be scrutinized. These overlaps are commonly realized in the context of a reportable acquisition of a business in an industry where the acquiring fund, or its limited partners, have pre-existing holdings. It is therefore increasingly important to identify minority holdings and potential overlaps in anticipation of this type of scrutiny and, where necessary, ensure not only that closing conditions and timelines contemplate regulatory review, but also that contractual cooperation and efforts covenants are included in fund formation and limited partnership agreements, so that any questions raised by the Canadian antitrust agency can, as a practical matter, be addressed without undue delay to closing.

Takeaway 9: Canadian Tax Considerations for PE Clients

Effective October 1, 2025, the CRA overhauled the Voluntary Disclosures Program (VDP), expanding access and providing a potential path for PE funds to address tax errors. The new VDP includes a two-track system for unprompted disclosures, where the taxpayer has not been contacted about a specific compliance issue, and prompted disclosures, where the CRA has received third party information or has previously communicated with the taxpayer about the issue. Unprompted disclosures may be granted full relief from penalties and 75% interest relief, with prompted disclosures offering relief of up to 100% of penalties and 25% of interest (subject to certain limitations). Unlike under the previous regime, large corporate taxpayers can now qualify for the full benefit of the program, and more flexibility is provided to repeat applicants. No relief is available under the VDP once an audit or investigation has been initiated.

Other changes to Canada's tax reporting rules will impose filing requirements for certain PE funds with bare trusts, generally beginning for the 2026 taxation year. Bare trusts are often used by PE funds to hold real property, resource, or infrastructure investments on behalf of a fund. Historically, trust returns generally did not need to be filed for bare trusts. Amendments to the trust reporting rules would now require bare trusts to file a return, together with information regarding beneficial owners, absent an exception applying. One proposed exception is for certain bare trusts under which a partner (e.g., the General Partner) holds legal title to property for the benefit of a partnership in respect of which T5013 information returns are filed.

Takeaway 10: Cross-Border Activity and Considerations for Foreign Investors

Cross-border activity was still a dominant driver of deal count and volume in Canada, with 75% of deal value involving a PE firm bidder in cross-border transactions, the majority of which came from the US. Similarly, most cross-border strategic bidders also came from the US, accounting for 54% of deal count.

Regarding national security reviews for foreign direct investment, the Competition Bureau is taking a balanced approach and US PE investors are not typically heavily scrutinized except for the most sensitive industries, like certain defence-based investments, quantum computing, and sensitive AI investments. National security and data sovereignty concerns may also create additional scrutiny of foreign direct investments in digital infrastructure, as certain digital assets may become of singularly more importance due to Canada's relative size to the US, thereby impacting deal timelines and certainty when needing to assess such investments on ownership and control.

As of right now, CUSMA compliant goods still remain exempt from US tariffs, and Canada has reduced retaliatory surtaxes against the US, but managing tariff uncertainty and conducting supply chain investigations and tariff modelling remain key components of diligence that can have material impacts on company valuations irrespective of buyer nationalities. Many small and medium-sized enterprises remain impacted by the repeal of the de minimis exception, which exempted low-value shipments from duties, and it is impossible to predict how different the renegotiated CUSMA will be.

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