Quebec’s Evolving M&A Market: The Rise of Private Equity and Domestic Buyers

March 11, 2025

Written By Jean Tessier, Zirjan Derwa and Sam Kennedy

Quebec’s mid-market M&A landscape has undergone a seismic shift in recent years, with local buyers increasingly outbidding international investors for highly sought-after assets. This trend is fueled by a combination of targeted government interventions, record-level private equity dry powder and a notable shift in seller preferences toward local acquirers. As we enter 2025, it is essential to examine the macroeconomic forces, policy decisions, new initiatives of funds on tariffs and competitive dynamics driving this evolution—and what it signals for Quebec dealmaking for the foreseeable future.

Government Support for Acquisitions and Investments

Québec’s acquisition-friendly policy environment has significantly reshaped the playing field, bolstered by a coalition of provincial and federal institutions actively facilitating local acquisitions. Key players include¹:

• Investissement Quebec (IQ): Through direct equity investments, loan guarantees and strategic advisory support, IQ helps local businesses expand through M&A (notably), while maintaining Quebec ownership. In recent years, IQ has ramped up its involvement in strategic sectors such as manufacturing, technology and life sciences, ensuring that key companies remain domestically controlled.
• Business Development Bank of Canada (BDC): BDC supports financing acquisitions by Quebec-based buyers, particularly in the lower and mid markets. Its Growth & Transition Capital division provides financing solutions, including mezzanine debt and equity-like structures, allowing management teams and Quebec-based investors to secure funding for M&A without excessive dilution.
• Caisse de dépôt et placement du Quebec (CDPQ): CDPQ has reinforced its role as a cornerstone investor in Quebec businesses, consistently acquiring stakes in high-growth, strategically important sectors. With over $470 billion in net assets under management, CDPQ supports local companies through direct investments, co-investments and private equity.
• Fonds de solidarité FTQ (FSTQ): Structured as a labor-sponsored investment fund, FSTQ manages over $21 billion in net assets and pools capital from approximately 800,000 individual investors to support domestic businesses through equity investments and subordinated debt. The fund has been a key player in local M&A transactions, often partnering with management teams to facilitate Quebec-based buyouts.
• Fondaction: As another labor-sponsored investment fund with $4 billion in net assets under management pooled from approximately 220,000 individual investors, Fondaction finances small and midsize enterprises through various impact-driven investments. With a growing presence in M&A transactions, it provides capital to businesses committed to long-term regional growth.
• Innovation, Science and Economic Development Canada (ISED) / Strategic Innovation Fund (SIF): While federally managed, ISED and its SIF program play a key role in supporting large-scale investments and acquisitions in Quebec, particularly in strategic industries such as clean technology, advanced manufacturing and artificial intelligence (AI). SIF provides direct funding to local companies that align with national economic priorities.

Increased Private Equity & Strategic Buyer Activity

Although at a slower pace than the increases seen in 2023, Quebec-based private equity firms and institutions continued in 2024 to amass, or preserve, unprecedented reserves of dry powder, positioning themselves as decisive players in mid-market transactions. This accumulation stems from:

• Strategic Capital Preservation: Amid the economic uncertainty of 2022–2023, many organizations adopted a cautious investment approach, leading to a significant backlog of undeployed capital, which is expected to be increasingly deployed in 2025. However, ongoing geopolitical tensions, including trade disputes, may slow capital deployment in certain sectors.
• Successful Fundraising Momentum: Several top-tier Quebec-based private equity firms have recently completed fundraising rounds. For example, in January 2025, Novacap, a Montréal-based private equity firm with over $8 billion of assets under management, announced the close of its inaugural digital infrastructure fund, securing over US$1 billion.
• Shift Toward Domestic Strategies: In response to geopolitical uncertainties, trade tensions, and currency fluctuations, many Quebec-based private equity entities have refocused their investment strategies on local assets. This pivot reduces exposure to external risks while reinforcing their influence in the province’s mid-market segment.

At the same time, sellers are increasingly prioritizing Quebec-based buyers due to:

• Execution Certainty: Local acquirers benefit from streamlined regulatory approvals and easier access to Quebec-based financing.
• Cultural & Operational Alignment: A Quebec-based buyer is often better equipped to navigate unique regional dynamics, including labor regulations, linguistic considerations and sector-specific business practices—factors that can de-risk post-closing integration.
• Long-term Commitment: Quebec-based investors are often perceived as being more dedicated to the local economy in the long term compared to foreign buyers, making them preferred partners in competitive bidding scenarios.

For instance, CDPQ has significantly ramped up its private equity allocation in the last years, with private equity holdings nearly doubling from 10.1 percent of its portfolio in 2013, to 20.1 percent in 2022. The institution’s focus on sub-$500 million deals positions it as a dominant force in Quebec’s mid-market segment. In this context, as of 2024, CDPQ had $93 billion of net assets invested in Quebec, with the objective to reach $100 billion in 2026.

On a national level, the CVCA (Canadian Venture Capital & Private Equity Association) reported that Q4 2024 set a historic record in Canada as the highest quarter in a decade for private equity investment. Quebec accounted for 59 percent of all Canadian private equity deals and 69 percent of total deal value in 2024—translating to $19.1 billion deployed across 385 transactions.

International Investors Redefine Their Approach

While foreign investors remain active in Quebec’s M&A market, they face heightened challenges:

• Stronger Competition from Local Bidders: Quebec-based private equity firms and institutional investors have amassed significant capital reserves, allowing them to compete aggressively for high-value assets. With access to tailored financing options and strong government backing, these domestic players often have a competitive edge in negotiations.
• Stricter Regulatory Oversight: The Canadian government has increased scrutiny over foreign takeovers in sectors deemed strategic. Recent policy shifts signal a preference for maintaining domestic control over key industries, making regulatory approval more complex and uncertain for at least certain classes of international buyers.
• Currency Volatility and Financing Costs: Fluctuations in the Canadian dollar, coupled with elevated borrowing costs, have made cross-border transactions less predictable. Foreign investors, particularly those relying on USD or EUR denominated funds, must carefully assess currency risks and the impact of interest rate differentials on deal economics.

As noted, the federal government continued its trend of closely scrutinizing certain classes of investments under the Investment Canada Act (the ICA), creating additional hurdles for international buyers. In recent years, acquisitions in sectors such as natural resources, AI, and defense have faced heightened regulatory review. In the fall of 2022, the Canadian government made a significant shift in its foreign investment policy, taking decisive steps to restrict state-owned enterprises and foreign-influenced private investments from “hostile” or “non-likeminded” entities in Canada’s critical minerals sector. This shift has had a chilling effect on foreign investment in the sector, including non-controlling interests, particularly from Chinese investors. In July 2024, the government further tightened its stance, announcing that mandatory “net benefit” reviews under the ICA involving critical minerals production would only be approved “in the most exceptional of circumstances.” This heightened scrutiny is reflected in recent statistics. Specifically, during the Canadian government’s fiscal year 2023-2024 (ending March 31), 26 investments underwent extended review under the ICA’s national security regime. Of those, 15 were approved following review, nine were withdrawn and two resulted in a federal Cabinet order requiring the investor to divest its investments.

On March 5, 2025, Minister of Innovation, Science, and Industry François-Philippe Champagne announced that the Canadian government may invoke the national security regime under the ICA to prevent “opportunistic or predatory investment behavior by non-Canadians”. To this end, the Minister updated the national security guidelines under the ICA to include the potential impact of an investment on Canada’s economic security as a factor to consider. In his statement, Minister Champagne referenced the “rapidly shifting trade environment”, which appears to be in response to the imposition on March 4, 2025 of 25 percent tariffs on all Canadian goods imported into the United States (subject to different treatments for specific products and industries, and subject to a relief until April 2, 2025 on Canadian exports that are compliant with the Canada-US-Mexico Agreement (the CUSMA))². However, neither the Minister’s statement nor the updated guidelines explicitly reference any specific country. If the national security regime is utilized to scrutinize US investors, it would mark a significant shift from past practice, as US investments have rarely faced such in-depth review.

That said, rather than retreating in the face of heightened regulatory scrutiny, many international investors are adapting their approach to Quebec’s landscape. Minority stakes, strategic partnerships, and co-investments with local institutions have emerged as preferred structures, allowing foreign players to maintain a presence in key sectors while aligning with domestic priorities.

Recent examples illustrate this trend. In November 2023, with support from Hydro-Quebec for power and backing from the Quebec government, Microsoft announced a US$500 million investment to expand its digital infrastructure and skilling initiatives in the Quebec City region, bolster the province’s innovation economy and prepare Quebec for the evolving AI landscape. In 2024, with the goal of strengthening the region’s burgeoning quantum technology ecosystem, French computing firms Quandela and Pasqal established operations in Sherbrooke, Quebec, supported by financial backing from the Quebec government. These investments reflect the province’s strategy of fostering high-tech investments while ensuring local participation in cutting-edge industries. Finally, Montréal International recently reported that foreign investors injected a total of $2.7 billion into the city’s metropolitan economy in 2024, fueling growth in key innovative sectors such as cleantech, AI or life sciences, and underscoring Quebec’s continued attractiveness to international capital despite regulatory headwinds.

These shifts underscore a broader realignment: while the barriers to foreign investments have increased for specific industries in certain contexts, Quebec remains open to international investment—particularly when structured through partnerships that align with local economic and strategic objectives.

Global Private Equity Trends: Strong Momentum Heading into 2025

As private equity firms enter 2025, they do so with renewed confidence and significant capital reserves. After a relatively cautious period in 2023–2024 marked by economic uncertainty and higher interest rates, investors are now positioning themselves for a new wave of deal activity, although geopolitical tensions and shifting tariff policies may influence market dynamics.

• Private Equity Capital Deployment Expected to Accelerate: According to a recent EY report, 73 percent of general partners globally expected increased deployment activity in 2025. Private equity firms are facing increasing pressure to put capital to work and provide returns for limited partners—though persistent geopolitical uncertainty continues to add complexity to investment decisions.
• Record Levels of Dry Powder: Global private equity dry powder has reached a record US$2.51 trillion as of December 2024, according to recent Preqin’s data. This unprecedented capital overhang suggests that competition for quality assets will intensify.
• US Middle Market Positioned for Growth: PineBridge Investments noted in December 2024 that the US middle market is set to benefit from anticipated rate cuts, which could unlock deal flow that had been stalled by expensive debt financing. This trend could have spillover effects on Canadian and Quebec-based dealmaking, particularly for cross-border transactions.
• Valuation Pressures & Exit Strategies: While deal volume is expected to rise, private equity firms will still face challenges in navigating valuation expectations. With many portfolio companies acquired at higher multiples pre-2022, exit strategies will require careful timing to maximize returns.

For Quebec’s M&A market, these global dynamics will shape both competition for assets and access to international capital. Well-capitalized local funds, combined with continued foreign interest, are likely to keep dealmaking momentum relatively strong throughout 2025.

What to Expect in 2025

As Quebec’s mid-market M&A landscape continues to evolve, competition among buyers is expected to remain intense in 2025 (and in the coming quarters). Several factors will shape the market and influence deal activity:

• Role of Government-Backed Institutions: Quebec’s government-backed institutional investors will continue to play an active and strategic role in the province’s corporate landscape. Recent developments, such as the going-private transaction of Innergex, or the actions taken in relation with TFI International’s headquarters relocation decision, highlight their sustained commitment to supporting Quebec-based businesses. With rising trade barriers and tariffs, their role and involvement in stabilizing and strengthening the local economy is likely to become even more pivotal in the foreseeable future.
• Adaptation Strategies of Foreign Investors: As local buyers become increasingly competitive, foreign investors will need to adjust their strategies to maintain a foothold in the market. We can expect them to offer more attractive deal structures, form local partnerships, or navigate regulatory challenges more effectively to stay competitive, though the extent of these adjustments will depend on the pace of market and regulatory evolution.
• Impact of Macroeconomic Conditions: Although financing costs have stabilized compared to the sharp increases of 2022–2023, borrowing remains expensive. Dealmakers are expected to adapt by structuring transactions with more earn-outs, contingent payments, and alternative funding mechanisms to mitigate financial constraints. While overall deal volume may improve, high capital costs will still challenge leveraged buyouts and debt-heavy deals.
• Sector-Specific Growth Opportunities: Certain industries—such as technology, renewable energy, and infrastructure—will remain focal points for investors, given strong underlying demand and government incentives. Sectors tied to Quebec’s supply chain resilience and self-sufficiency strategies, such as critical minerals and agri-tech, may attract increasing interest.
• Evolving Trade Policies & Tariffs: The ongoing trade war between Canada and the United States is affecting cross-border transactions and creating uncertainty. Following the imposition on March 4, 2025, of 25 percent tariffs on all Canadian goods imported into the United States (subject to different treatments for specific products and industries, and subject to a relief until April 2, 2025 on CUSMA-compliant Canadian exports), increased protectionist policies should encourage Quebec-based firms to prioritize domestic consolidation. Meanwhile, foreign acquirers could seek creative structuring solutions to navigate trade-related hurdles.
• Valuation Trends & Exit Strategies: If geopolitical conditions—including trade policies and tariffs—stabilize, valuation gaps between buyers and sellers may narrow, potentially increasing deal flow. In this scenario, private equity firms would likely focus on portfolio optimization, balancing new acquisitions with strategic exits, especially for assets acquired at peak valuations before 2022.

One thing is clear: Quebec buyers are no longer just participants in the province’s mid-market M&A— they are shaping the market’s direction. With strong capital reserves, continued government backing, and an increasingly competitive dealmaking environment, local acquirers are well-positioned to drive M&A activity for the foreseeable future. At the same time, evolving trade policies and financing constraints will shape transaction structures, while foreign investors are expected to adapt their strategies to maintain a presence in the market. As Quebec’s M&A landscape continues to evolve, local ownership and strategic growth will remain key themes in the quarters ahead.

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