Positioned for growth: Readiness and resilience fuel opportunity in a recovering exit market

As we head into the final month of 2025 and look toward 2026, Canadian entrepreneurs and the investors who back them are navigating an exit environment defined by both caution and complexity. Yet, beneath the surface, the first signs of renewed momentum are appearing.

Capital remains abundant, downward-trending interest rates are reducing the cost of debt capital to support M&A, and there is increasing pressure on investors to divest and deploy funds. This suggests that, while many are waiting on the sidelines due to ongoing macroeconomic uncertainty, the conditions for a pickup in activity are gradually coming into place. The challenge, and the opportunity, lies in being ready.

A two-speed market emerges

The landscape today is best described as a two-speed market. On one hand, firms that continue to demonstrate resilience are commanding premium valuations and closing deals. These include businesses with strong fundamentals, professional leadership, and a proven ability to adapt. Companies that are not exposed to cross-border tariff concerns (including those that do not rely solely on USMCA protections that could be impacted by eventual renegotiations) are also transacting more successfully. In addition, businesses providing non-discretionary products and services that remain in demand regardless of economic conditions are seeing stronger outcomes.

On the other hand, businesses that have yet to professionalize, lack a sustainable competitive advantage, or face tariff-related risks are experiencing prolonged timelines, valuation pushback, and increased scrutiny. As a result, exit horizons are stretching, and both investors and owners are recalibrating their expectations to account for a more nuanced, risk-conscious market. This divergence is evident across multiple market segments.

Take the IPO market as an example. The window for public offerings in Canada remains extremely narrow. Only 5 traditional IPOs were completed on the TSX Venture Exchange between January and August of this year, and, excluding specialized listings, only a handful of IPOs have made it to the TSX since 2022. Even as some large global companies in sectors like AI and energy have managed to access public markets, the Canadian environment remains quieter.

Venture capital activity tells a similar story. According to CPE Analytics, Canadian VC investment totaled $2.9 billion in the first half of 2025, the second-lowest first-half result in five years. Investors are increasingly favouring later-stage companies that are professionally managed, diversified, and generating profits. The focus is squarely on fundamentals and resilience.

Strategic buyers, including both corporate and private equity-backed firms, are the most active participants in the current market. Because they are already investors in their respective end markets and have deep knowledge of their sectors, they are able to invest with greater conviction. As a result, we are seeing a high volume of tuck-in acquisitions, which are generally considered lower risk. While these buyers remain selective, much of this caution is linked to continued uncertainty stemming from global economic and geopolitical factors. Borrowing costs — which rose in 2022 and 2023 — have remained elevated but are now starting to decline, although the decrease is slower than many anticipated. This environment has resulted in ongoing uncertainty around valuations.

Continued growth in the disconnect between buyer and seller expectations has become apparent. Buyers are reassessing assets based on evolving inflation and macro risk, while many business owners remain anchored to pre-pandemic valuations. As a result, more inventive deal structures are needed to bridge valuation gaps and get transactions done. Earn-outs, material equity rolls, vendor notes, and other creative approaches are becoming the norm rather than the exception.

Private equity, meanwhile, is sitting on a record amount of dry powder—over $2 trillion in North America alone. There is real pressure on funds to invest, but the exit options currently remain limited for existing portfolio companies. In Canada, private equity deal value dropped to just US$6.5 billion in the second quarter of 2025, less than half of what it was a year earlier. Holding periods have extended well beyond the traditional three to five years, creating pent-up demand on both the buying and selling sides.

The good news is that the ingredients for a rebound are in place. Financial conditions have started to ease, the Bank of Canada lowered rates in September and October, and tariff-related disruptions could moderate. Once macro conditions stabilize and valuation expectations narrow, we could see a meaningful uptick in deal activity—potentially within months. However, timing that window is difficult, and the better strategy is to focus on readiness.

Preparation as a competitive advantage

For business owners and management teams, preparation is now the real competitive edge. Improving operational efficiency, professionalizing systems, processes and management teams, and expanding margins should be top priorities. Equally important is demonstrating that the business is built to scale, can withstand shocks through a competitive advantage, and can operate independently of its founders. Buyers are looking for clear value creation plans and a strong track record of execution, whether that means expanding into new markets, launching new products, or making strategic acquisitions. Audit-ready financial reporting is essential to withstand the rigorous due diligence that buyers will inevitably conduct.

Resilience is also key, particularly for Canadian companies exposed to rising protectionism, global supply chain challenges, and U.S. market volatility. Those that can prove their ability to weather these external shocks will be the first to attract serious buyer interest when the market picks up. Optionality is another critical advantage. Companies that prepare for more than one exit scenario—whether an outright sale to a strategic or financial buyer, a recapitalization with private equity, or even an IPO—will have the flexibility to act when the right opportunity arises. Maintaining a flexible balance sheet is part of this strategy.

Ultimately, owners must be realistic about what buyers are seeking. Most buyers today, especially private equity investors, continue to prefer control positions; however, in minority investments, we are seeing a shift toward the use of structured instruments rather than common equity. These tailored structures—often incorporating features such as preferred returns, enhanced governance rights, and defined exit pathways—allow investors to better manage risk and align interests with management. Buyer interest remains strong in sectors such as business services with recurring revenue models, healthcare and life sciences, distribution, and specialized manufacturing and packaging. Nonetheless, the key to unlocking value lies in building professionalism, resilience, and optionality into the business model well before seeking an exit.

In this market, patience and preparation are not simply virtues—they are competitive advantages. The companies that invest in operational excellence, financial transparency, and strategic flexibility now will be the first to benefit when market momentum returns. The next cycle of opportunity is on the horizon. The question is not if, but who will be ready to seize it.