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Canadian Inbound M&A: Trends from Europe and the U.K.

Canadian Inbound M&A: Trends from Europe and the U.K.
April 14, 2022

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Since mid-2020, the global M&A market has seen a whirlwind of dealmaking activity. In this episode of our Blakes Sound Business, Partners Michael Kariya and Cassandra Brown provide insight on inbound investment trends from Europe and the U.K. and the impact of foreign investment regulations in Canada.


Jordan: Hi, I’m Jordan Virtue.

Nathan: And I’m Nathan Kanter, and this is our first episode as Blakes Sound Business.

Jordan: That’s right, Nathan. It was time to move on from a COVID-focused podcast to one that is broader in scope.

Nathan: Today’s episode of Blakes Sound Business will focus on M&A and foreign investment, two areas that have seen a lot of activity and change during the last two years.

Jordan: To tell us more about these latest trends, we’re joined by M&A Partner Michael Kariya from our London, U.K., office, and Cassandra Brown, a Competition and Foreign Investment Partner in Toronto.


Jordan: Michael, the global M&A boom that started in mid-2020 resulted in record activity during the pandemic. What are you seeing in terms of European investment into Canada?

Michael: Yeah, so, following a brief lull in M&A activity at the start of the pandemic, as you note, the period from really mid-2020 to date has been a period of sustained and really frenetic dealmaking activity.

In 2021, total deal value, volume, hit record highs, and not surprisingly, we saw U.K. and continental European strategic and financial investors, you know, really take a close look at some quality Canadian businesses. And with the competition for quality assets already being globally exceptionally high, developed and politically stable economies like Canada’s have really benefited from this need by investors to deploy capital.

Jordan: Are there any sectors in Canada that are particularly hot?

Michael: So, technology, software and life sciences sectors really formed a large proportion of the inbound investment into the Canadian market during the pandemic.
In Canada, mid-market deals, they’re the driving force of the Canadian M&A market and many of the high-growth businesses in the sectors that I just mentioned reside in this space, often founder led and were, you know, just really well positioned to execute on M&A solutions with the right foreign investor and with the result that, you know, they were able to expand their reach beyond the Canadian borders.

Jordan: Do you think the pandemic boom momentum will continue?

Michael: There’s no question that the amount of private capital looking to be deployed continues to run at all-time highs. You know, there’s that on the one hand, but we can’t ignore various macroeconomic forces that are on the horizon, all of which could potentially pump the brakes on the M&A activity that we’ve seen over the last couple of years during the pandemic.

You know, just by way of example, many of the pandemic-era government stimulus programs are coming to an end, interest rates are starting to rise, and inflation is running at levels that a lot of us haven’t seen in our working lives. And finally, geopolitical risks, including the war in the Ukraine, are all giving rise to new sources of economic uncertainty and market volatility that could dampen dealmaking activity.

Jordan: What are some of the key deal-structuring trends and issues you are encountering when acting for European clients doing Canadian private M&A deals?

Michael: I’ll touch on three:

  • First, earnouts are on the rise in Canada, perhaps not unsurprising in times of economic uncertainty and market volatility. These are the types of conditions that give rise to valuation gaps between buyers and sellers.

  • Second, we’re seeing an increase in “no recourse” deals in private transactions in Canada. So, a situation where the sell side isn’t required to give an indemnity, so the buyers only recourse is for fraud.

  • And third, on cross-border transactions from Europe into Canada, we generally spend a lot of time on structuring the management teams rollover of equity and management incentives, and in Canada, the only tax-preferred incentive program for management is a stock-option plan.

Nathan: Cassie, can you elaborate on Michael’s comments from a foreign investment perspective?

Cassandra: Yeah, for sure, so the U.K. and Europe traditionally are a huge source of inbound investment into Canada. That’s second only to, obviously, the U.S.

One thing, sort of unsurprisingly during the pandemic, Canada’s natural resources businesses were less popular targets for foreign investment. It makes sense when you look at the sort of low dip in valuation that occurred early on in the pandemic in that sector. And from a foreign investment perspective, that was coupled with the Canadian government releasing a special advisory that was kind of warning foreign buyers against predatory investments.

In terms of Mike’s comments on the sort of potential macroeconomic head winds that might affect overall levels of deal activity going forward, you know, we have actually already started to see signs, from a regulatory perspective, of a bit lower levels of M&A in 2022.

So, for example, the Competition Bureau has reviewed about 31% fewer deals year-to-date this year compared to 2021 and almost 40% fewer deals compared to at this point in the year in 2020.

So, the busyness of regulators is sort of a proxy, sometimes, for overall levels of deal activity, and we have seen from that perspective a bit of a slowdown so far this year compared to the two previous years.

Nathan: Are there any key trends you can share with us?

Cassandra: Yeah, so, I think one thing that’s sort of been gathering steam in the last few years is how much headspace, I guess, national security risks and concerns take up on a transaction. That’s not limited to Canada. I think that’s sort of a global trend.

But, just for example, in 2020 to 2021, which is the last year that you can get government data on this, there were as many national security reviews and national security screens as there were for the four previous years before that. So, that said, we’re not seeing the national security activity focused on investments that are originating in the U.K. and Europe. Unsurprisingly, a lot of the national security screens and full reviews are on transactions where the investors originating elsewhere in Asia, a lot are from China.

There are other jurisdictions, even jurisdictions that historically have not focused on national security, that are now sort of ramping up their internal capacity to review transactions from a national security perspective. One of the most notable ones is the U.K. So, they had a piece of legislation that recently came into force, and it’s very sweeping in scope, and we’ve even seen instances where it could apply to Canadian businesses that are doing M&A solely on the basis, sometimes, of the sector that they’re in and the fact that they have customers in the U.K., even if they don’t have a physical presence in the U.K.

Jordan: Michael and Cassandra, thank you for joining us today to share your knowledge on the latest trends in M&A and foreign investment. A great way to kick off our first episode as Blakes Sound Business.

Nathan: Listeners, for more information on our M&A and foreign investment groups and our podcast, please visit

Jordan: Until next time stay well and stay safe.

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Our Blakes Sound Business podcast (formerly, Continuity) examines how changes in the Canadian legal landscape can impact businesses in our post-COVID reality and beyond. Lawyers across our offices discuss the unique challenges, risks, legal developments, opportunities and government policies that you need to be aware of. We also cover diversity and inclusion and other social responsibility topics that matter to you.

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