U.S. deals for Canadian companies hit a 22-year low in January as President Donald Trump’s economic threats cast a pall over mergers and acquisitions.

Deal makers say Trump’s mooted 25 per cent tariffs have prospective buyers worried about the impact on Canadian companies’ profit margins.

January saw only 19 mergers or acquisitions of Canadian companies with a U.S. acquirer involved, a 22-year low for January, according to data from the London Stock Exchange Group (LSEG). The number of U.S. buyers’ acquisitions in Canada had risen 72.4 per cent over the past five Januaries, with 50 acquisitions in January 2024.

Overall M&A activity in Canada also fell in January, according to LSEG, reaching a nine-year low for the month. It dropped 37 per cent from January 2024, which saw 210 deals.

The overall deal value for M&A in Canada in January dropped to roughly US$6.1 billion, down from roughly US$10.1 billion in deals in January 2024 but still ahead of the roughly US$4.6 billion and US$5 billion in January 2022 and 2023, respectively. Deal value for Canadian M&A activity involving a U.S. acquirer followed a similar trend.

Deal makers had been optimistic about the outlook for Canada in 2025. Analysts believed stabilizing interest rates would reassure buyers, giving them a clearer picture of what companies were worth, and global private equity looked ready to deploy the record capital on their books. 

Were it not for the tariff threat, the conditions would be ideal for deal making, said Marco Tomassetti, corporate finance lead at KPMG. Banks have strong balance sheets and are in a good position to lend. Falling interest rates are positioning companies for better returns, which should make them attractive takeover targets.

But short-term corporate confidence is dwindling, Tomassetti said. A KPMG survey of 250 business leaders in Canada found 58 per cent plan to delay M&A plans for at least the next six months. Almost two-thirds said they would consider acquisitions in the U.S. if tariffs were enacted.

“It’s just hard to trigger a buy right now,” Tomassetti said. “You need to wait to see how it settles.”

It’s more difficult to value a business for a transaction when it’s not clear what impact tariffs will have on its cash flow, said Tomassetti. Prospective buyers don’t know what the effect of tariffs or other economic measures will be on individual businesses.

Brock McMillan, engineering lead at EY Canada, said though he’s working on a few deals that are near closing, it’s likely they’ll be delayed. Prospective buyers are particularly concerned about the prospects for Canadian businesses that rely on sales to the U.S. “We’ve definitely seen road bumps in our transactions,” said McMillan. “When you have uncertainty, the deal market freezes up.”

It’s particularly true for international buyers who might be in the market for Canadian deals, said Tim Caulfield, managing director at Franklin Templeton’s ClearBridge Investments. “It’s really hard for international businesses to commit capital to Canada when they don’t know how Canada is going to be treated on the world stage.”

European buyers used to see Canada as an important entry point into the North American market, a small, multicultural market from which they could later expand to the U.S., says Aimé Toumelin, co-founder of Hadaly, a startup that uses AI to facilitate M&A for small companies. 

Quebec companies are especially attractive for buyers in France, he added. As the tariff threat looms, prospective buyers who would typically look to the Canadian market may prefer to skip over it, he said, especially if Trump’s policies significantly improve the business climate in the U.S. “Short term, those people are worried because they usually use Canada as a platform to enter the American market,” Toumelin said.

Whether Canada retaliates, and how, may have the biggest impact on what costs companies and consumers face in the country, said Daniel Nowlan, a managing director at National Bank. “We’re in a bit of a stasis until the Liberals get their leadership sorted out.”

A weak loonie could help offset the deal freeze in the medium term, especially for prospective U.S. buyers, said Caulfield. “The weakness in the Canadian dollar can be very enticing for U.S. companies to take advantage of,” Caulfield said.

However, a weak loonie could also make the profits of Canadian companies less valuable, potentially dissuading U.S. acquirers, Tomassetti at KPMG countered. If the tariffs are in place for a while, it may start disrupting valuations of Canadian companies over the longer term, EY’s McMillan said.