Protectionism under a second Trump administration may end up spurring more deal-making in Canada, experts say, as businesses prioritize maintaining access to the U.S. market.
Despite economic nationalism being a hallmark of Donald Trump’s presidential campaign – he has repeatedly promised to impose universal taxes on all imports, which would pose major economic problems for Canada’s export-reliant economy – mergers and acquisitions experts argue those policies could encourage Canadian businesses to do more cross-border deals.
“If there are going to be barriers to goods moving across the border, I think one of the natural outcomes of that is going to be people thinking about moving across the border,” Karrin Powys-Lybbe, co-head of the M&A practice at law firm Torys LLP, said in an interview.
“I think of M&A as a way to address tariffs and international trade restrictions.”
John Clifford, M&A partner and chief operating officer at McMillan LLP, said tariffs on Canadian imports into the United States might actually encourage Canadian companies to acquire U.S. rivals as opposed to moving its own operations south of the border.
“Either way it is better for you to be in the United States and be in the market than out of the market,” he said. “That is why it is called protectionism.”
Mr. Trump has also pledged to embark on a widespread deregulation campaign. Because a lower regulatory burden raises the odds of approval for corporate mergers and acquisitions over all, investors have been betting heavily on an imminent M&A surge.
Shares of Capital One and Discover, for example, jumped earlier this week on the belief that the election result will make it easier for their US$35-billion merger to win regulatory support.
But any regulatory changes under the next U.S. president “is largely going to be a U.S. phenomenon,” said Stephen Ng, managing director of boutique investment bank Crosbie & Co.
“For a lot of the mid-market companies, which is the vast majority of the Canadian marketplace, the regulatory and protectionist measures wouldn’t impact those businesses as much,” Mr. Ng said. “I think a lot of that is really just going to impact the U.S. M&A market more than Canada.”
Tariffs, however, could end up being a net negative for Canadian M&A activity, according to Shez Bandukwala, a partner in the deal advisory practice of KPMG Canada.
“To the extent there are across-the-board tariffs, that will impact certain Canadian companies that have a high exposure of U.S. sales and that lessens the value of those companies, which makes them less attractive to acquire,” Mr. Bandukwala said, adding those companies would also have less capacity to make acquisitions themselves.
Canadian deal-making activity has been subdued since the recent peak in early 2022, with third-quarter activity coming in well below the most recent 10-year average. But history suggests that is normal for U.S. presidential election years, and is usually followed by an uptick in M&A activity early the following year.
“You typically see a dip in the third quarter, which we saw, and then an uptick in the first quarter of the new year once parties adjust to the new political landscape,” Sherri Altshuler, co-leader of the capital markets group at Aird & Berlis LLP, said in an interview. “There is a lot of data on that, where you see a slowdown leading up to Q3 and then an uptick in the New Year.”
Loosening regulatory barriers in the U.S., or even installing more deal-friendly regulators, is unlikely to make much of a difference to Canadian M&A activity, Ms. Altshuler said, since only very large transactions tend to face significant regulatory scrutiny and Canadian deals – even cross-border deals – are generally smaller.
“There is so much being written in the U.S. about the impact of the loosening of antitrust and how that will bring back some of these really big deals in the U.S., but that is not the Canadian market,” she said. “The Canadian market is really focused on that middle market and lower middle market deals, so the impact will be not as profound for that reason.”
To some extent, the deal-making environment under a second Trump administration remains unpredictable as the memory of consistent uncertainty that existed under the first Trump administration remains fresh in the minds of many business leaders. That, Torys’ Ms. Powys-Lybbe said, could lead some to adopt a wait-and-see approach.
“Even if there is a shift to a more pro-business tone, it will take some time,” she said. “Until a few brave souls test the waters, others may feel there is still some uncertainty.”
