Private equity investment in Canada through the first half of 2026 has generally been resilient, though not necessarily robust, whereas 2025 was a standout year for private equity investment in Canada with reports of CAD57.5 billion invested across approximately 600 deals, the largest amount of dollars invested on record in a single year. However, 2025 was a tale of two extremes. On the one hand, deals under CAD25 million remained the primary focus of Canadian private equity investment, accounting for 86% of deal activity with disclosed values. On the other hand, there was an all-time high number of reported transactions valued at over CAD1 billion, with nine deals raising a total of CAD51 billion. 2025 also saw the highest total dollars on record invested via go-privates, with six deals accounting for approximately 45% of total annual dollars invested. Buyers appear willing to pay a premium for higher value, prized assets, but appear more hesitant to extend the same premium to mid-market targets, with many Canadian GPs concentrating on “buy and build” strategies, bolt-on acquisitions and pursuing synergies and efficiencies within their current portfolios.

Minority investment activity rebounded in 2025, surpassing the previous two years with 147 deals and CAD4.8 billion invested. Ontario and Quebec accounted for 82% of total deal flow and the great majority of private equity dollars invested in Canada over the year. As for private equity exits in Canada in 2025, a total of 52 exits totalled CAD2.8 billion. None of these exits occurred by IPO.

As in the PE market globally, the secondary market and continuation vehicles continue to be a common (and growing) segment of Canadian private equity activity.

See theTCanada Trends and Developments article of this guide.

Competition and Antitrust Matters

2025 ushered in a new and important development in competition and antitrust law, specifically that the Competition Act was amended, effective in June 2025, to expand the ability for private parties to seek leave to bring applications before the Competition Tribunal to include instances of alleged deceptive marketing and anti-competitive agreements. Previously, private rights of action were limited to refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction, and abuse of dominance. However, more recently, Bill C-15, which received royal assent on 26 March 2026, curtailed the scope of private enforcement by removing the ability of private parties to challenge business-activity greenwashing claims under paragraph 74.01(1)(b.2) of the Competition Act; responsibility for pursuing claims under that provision now rests exclusively with the Commissioner of Competition.

The effects of the reforms to Canada’s Competition Act that came into force in June 2024 on private equity firms are still taking shape. Among the most significant reforms was the introduction of a rebuttable structural presumption. Historically, the Competition Act prevented the Competition Tribunal from finding that a merger results in a substantial prevention or lessening of competition solely on the basis of concentration or market share, but now, where either the post-merger Herfindahl-Hirschman Index (an economic metric used to measure market concentration) exceeds 1,800 and the change in that index is greater than 100, or the merged firm’s combined market share exceeds 30% and the change in that index is greater than 100, the merger is presumed to be anti-competitive. Since the presumptions were introduced, the merger review process has generally become more onerous, with the Competition Bureau considering the presumptions in virtually all cases, designating a greater proportion of transactions as complex, issuing more information requests (in many cases focused on obtaining market share-related information) before assigning complexity, and issuing an increased number of supplementary information requests, all of which has tended to lengthen the effective review timeline for merging parties.

Corporate Transparency Requirements

Previously, companies governed by the federal and provincial corporate statutes in Canada were required to maintain a list of registered shareholders only. In recent years, corporate amendments expanded the requirement so that companies are required to maintain a detailed shareholder register that reflects all individual beneficial shareholders who have significant direct or indirect control over the corporation (or, in Quebec, information concerning the directors, officers and three largest shareholders and ultimate beneficiaries). The purpose of these reforms, like counterparts in the EU and the UK, was to provide greater transparency in corporate ownership and help combat tax evasion, money laundering and other smokescreen operations. For companies incorporated in Quebec or under federal corporate law, the transparency registers are filed in government-maintained databases and publicly accessible. Legislation has also been enacted in British Columbia that will make the transparency registers publicly accessible; however, despite being scheduled for summer 2025 the transparency register has not yet gone “live”. Practically speaking, private equity funds with a 25%+ passive economic interest, 25%+ management votes, or other contractual special control rights in their portfolio companies governed by the federal, BC or Quebec corporate statutes, should therefore be prepared to provide additional information about their own controlling interests that may be publicly accessible.

Anti-Money Laundering and Anti-Terrorist Financing

March 2026 saw the enactment of amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations introducing heightened enforcement powers and compliance obligations, which necessitate updated and more rigorous diligence procedures and practices for fund investor onboarding.

Privacy Matters

In Canada, personal information in the private sector is primarily governed by the Personal Information Protection and Electronic Documents Act (PIPEDA) and by substantially similar legislation in Alberta, British Columbia and Quebec. Canadian organisations may be subject to multiple Canadian privacy laws, as applicable legal privacy requirements depend on factors such as the geographic location of the individuals concerned and of the business related to the information being handled, as well as the place where the information is collected, hosted and processed. Depending on the type of personal information handled, provincial health privacy legislation may also apply. In June 2026, there were two key legislative developments. First, the federal government tabled Bill C-36, which would enact the Protecting Privacy and Consumer Data Act (PPCDA). If passed after a full legislative process, PPCDA would replace PIPEDA and introduce new compliance obligations including in respect of de-identified information and cross-border transfer, enhanced enforcement powers and heightened penalties. Second, Bill C-8, An Act Respecting Cyber Security, became law, amending the Telecommunications Act and introducing the Critical Cyber Systems Protection Act. Bill C-8 created a mandatory cybersecurity framework for operators in federally regulated critical sectors, including telecommunications, finance, energy and transportation.

M&A activity in Canada is governed by federal and provincial corporate statutes, provincial/territorial securities laws and, where applicable, stock exchange rules. The Bureau is responsible for antitrust considerations in Canada through the application of the Competition Act, and foreign investment is monitored by the Minister of Innovation, Science and Economic Development through the application of the Investment Canada Act (ICA); both are key considerations in private equity-backed transactions.

Residency Requirements and Language Laws

The federal statute and certain provincial laws (Saskatchewan, Manitoba, Newfoundland and Labrador) impose minimum Canadian residency requirements for board composition (25% resident Canadian, or at least one board member if the board is composed of fewer than four members), which sometimes influence the jurisdiction in which purchaser companies are formed by foreign private equity investors. The remaining provinces and territories, notably British Columbia, Alberta, Ontario and Quebec, do not have such limitations. Businesses operating in Quebec must respect the Charter of the French Language, which requires companies to meet French language requirements in various settings, including with employees, in contractual undertakings, and on websites and advertising.

Securities Regulators

Canada has no federal securities law or regulator. Securities laws are covered by ten provincial and three territorial regulators, although the applicable authorities are generally substantially equivalent in regulating securities matters across the country.

Competition Act

The Competition Act prescribes a “transaction size” threshold, a “party size” threshold and, in the case of transactions involving the acquisition of voting shares, a “shareholding” threshold for acquisitions of operating businesses with assets in Canada. If all of these thresholds are exceeded, a transaction is considered “notifiable” and, subject to certain limited exceptions, triggers a pre-merger notification filing. Transactions exceeding such thresholds cannot close until notice has been provided and the statutory waiting period has expired or has otherwise been terminated or waived. For the purposes of both the “transaction size” and “party size” thresholds, asset values are calculated having regard to the book value of the assets in Canada rather than the fair market value of the assets in Canada.

In 2026, the “transaction size” threshold requires the value of assets in Canada of the target (or, in the case of an asset purchase, the value of assets in Canada being acquired) or the gross revenues from sales in, from or to Canada generated by those assets to exceed CAD93 million. The “party size” threshold requires the parties to a transaction, together with their affiliates, to have aggregate assets in Canada or annual gross revenues from sales in, from or into Canada that exceed CAD400 million. The “shareholding threshold” requires the acquiror to hold at least a prescribed percentage of the target’s voting shares. In the case of private companies, the threshold is more than 35% (or more than 50% if the 35% threshold is already exceeded). In the case of public companies, the threshold is more than 20% (or more than 50% if the 20% threshold is already exceeded).

Foreign Investments

Pursuant to the ICA, the acquisition of control by a non-Canadian of a Canadian business is either reviewable or notifiable depending on several factors, including the structure of the transaction, the nationality of the investor, and the nature and value of the assets or business being acquired.

In summary, the direct acquisition of control of a Canadian business by a non-Canadian is subject to pre-closing review where one of the following thresholds is exceeded:

• CAD1.452 billion in enterprise value for a direct acquisition of control of a Canadian non-cultural business by a WTO investor that is not a foreign state-owned enterprise (SOE);
• CAD2.179 billion in enterprise value for a direct acquisition of control of a Canadian non-cultural business by a “trade agreement investor” (ie, an investor from a country with which Canada has a trade agreement, such as the USA or an EU country) that is not a foreign SOE;
• CAD578 million in asset value for a direct acquisition of control of a Canadian non-cultural business by a foreign SOE controlled by a WTO member state;
• CAD5 million in asset value for a direct acquisition of control of a Canadian non-cultural business by a non-WTO investor; and
• CAD5 million in asset value for a direct acquisition of control of a Canadian cultural business.

Indirect acquisitions of control of a Canadian non-cultural business by a WTO investor are not subject to pre-closing review, regardless of size. In contrast, indirect acquisitions of control of a Canadian non-cultural business by a non-WTO investor are subject to pre-closing review where the book value of the Canadian business’s assets is at least CAD50 million.

A transaction that is subject to pre-closing review cannot be completed unless the Canadian government is satisfied that the investment is likely to be of “net benefit to Canada”. The government’s net benefit analysis takes into account a number of factors, including:

• the effect the investment is likely to have on employment, resource processing, the utilisation of parts and services produced in Canada, and exports from Canada;
• the degree and significance of participation by Canadians in the business and in Canadian industry;
• the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
• the effect of the investment on competition within any industry in Canada;
• the compatibility of the investment with national industrial, economic and cultural policies; and
• the contribution of the investment to Canada’s ability to compete in world markets.

If the applicable threshold for a pre-closing review of the net benefit to Canada under the ICA is not met or exceeded, the acquisition of control of any Canadian business by a non-Canadian is subject to a relatively straightforward notification, which can be made either before or within 30 days of closing.

Separate and apart from the net benefit to Canada review process, the ICA also contains a mechanism to allow the Canadian government to review a foreign investment on national security grounds. There are no thresholds for such national security reviews; they can be initiated at the discretion of the government.

As Canada relies heavily on its trading partners and is generally supportive of foreign investments that do not raise national security concerns, historically “net benefit to Canada” approval under the ICA, where required, is seldom denied. However, in July 2024, the Minister of Innovation, Science Industry, issued a statement indicating that when it comes to “net benefit” reviews of foreign investments in large Canadian-headquartered firms engaging in critical mineral operations (presumably falling within Canada’s critical minerals list), “such transactions will only be found of benefit in the most exceptional of circumstances”. It is important to note that this statement relates to net benefit reviews, and not national security reviews. More importantly, this policy applies to all foreign investors, regardless of jurisdiction of origin or whether the investor is a state-owned enterprise.

Comprehensive due diligence is customary for a private equity transaction in Canada. Financial, tax, operational, environmental and general business diligence (including key partner, client and customer audits and meetings) is conducted with the private equity deal team for a new platform investment, and through a combination of the private equity deal team and existing management for add-on acquisitions. Consultants may be engaged to cover environmental risks, client audits or other industry-specific considerations.

General legal diligence will include a combination of:

• a review of publicly available documentation (websites, Confidential Information Memorandums and public disclosure documents, if available);
• preparing a detailed list of standard questions to be answered in writing by the target and its counsel, including topics covering corporate history, shareholder arrangements, material reorganisations, acquisitions and divestitures, commercial agreements, debt arrangements, IP/IT, privacy and cyber-risk, environment, real estate, regulatory compliance, litigation, labour, employment and benefits, and tax;
• a review of a data room and other materials provided in response to the diligence questions; and
• follow-up calls with relevant members of management on specific areas of interest.

Key areas of focus will vary depending on the industry in which the target operates. Over the past several years, it has been observed that private equity buyers have a heightened focus on privacy, cyber and IT diligence conducted by both the operations and legal teams, as well as on sanctions and import/export considerations.

Vendor diligence reports are not customary in Canada. Legal advisers rarely provide reliance on their buy-side diligence reports to third parties other than their private equity clients and the portfolio companies in the case of add-on acquisitions, although pressure to conform to European trends has increased in recent months in this regard.

Vendors typically provide a Confidential Information Memorandum, a detailed financial model and, depending on the stage and scope of the sale process, populated disclosure schedules based on representations and warranties provided in the vendor draft purchase agreement.

Unless there is a significant known liability that needs to be carved out through structuring as an asset sale, the vast majority of private equity transactions in Canada are completed via share purchase agreements.

Where the target has multiple shareholders or there has been significant restructuring of equity plans or other specific challenges in obtaining all required corporate approvals, and in the case of public company targets, a plan of arrangement may be used. An arrangement is a court-sanctioned agreement (similar to the UK scheme) that can accommodate various structures (share purchase, amalgamation) and complex capitalisations. Although a plan of arrangement can be more costly and take slightly longer than a simple share purchase, it is an efficient way to “clean up” messy capitalisation, providing certainty to the buyer through the court’s seal of approval.

Very few private equity deals are conducted by way of a takeover bid (whether friendly or hostile) in Canada. Regulatory hurdles and complex, extensive requirements for non-Canadian bidders are major deterrents, as are the delays and costs associated with possible second-step “squeeze-out” transactions.

The terms of the purchase agreement can vary significantly depending on the private equity player backing the purchaser and the strategic importance of the acquisition to an existing portfolio or the creation of a new platform, as applicable. In a competitive auction, the terms tend to be more balanced, and seller-friendly provisions (eg, shorter duration and smaller amount of indemnification holdback, acceptance of more pervasive qualifiers in the representations and warranties, shorter lists of closing conditions, and a more limited indemnification regime) and the use of representation and warranties insurance are more prevalent.

In Canada, a private equity-backed buyer will rarely be party to the purchase agreement directly. Where a newly created “shell” company is the purchaser, a fund may concede to providing equity commitment letters and causing banks to provide debt commitment letters as to the funding of the acquisition, and would also provide a limited guarantee to fund any reverse break-up fee, as the case may be, but this is more likely to be provided as a standalone undertaking as opposed to the fund intervening in the purchase agreement directly. In the case of public company targets, the board will require debt and/or commitment letters, as applicable, before signing off on definitive agreements (even where there is no formal “funds certain” statutory requirement to do so, as this obligation only applies to takeover bids in Canada).

With respect to exits, as most private transactions are structured as share purchase agreements in Canada and minority shareholders have remedies for oppressive conduct by the corporation, it is customary to have all shareholders (including the private equity players) execute the sale agreements, and in some instances, indemnification obligations can be severally (and not jointly) allocated proportionately amongst the various sellers.

The funding of private equity-backed M&A in Canada varies from transaction to transaction. Certainty of funding is only required under Canadian legislation for a takeover bid. As mentioned in 5.2 Structure of the Buyer, equity commitment letters are often provided by the private equity fund, particularly in competitive auction processes, with more sophisticated sellers and, in the case of privatisations, to provide vendors with heightened comfort that funding will be available for the transaction. On the debt financing side, the so-called “SunGard/Limited conditionality” provisions have made their way into debt commitment letters. While more often seen in the large-cap space, the provisions are also seen in middle-market transactions.

The financing of an acquisition itself varies from one fund to the next, in terms of debt/equity combinations (or cash on hand, in the case of add-on acquisitions within a platform). The past few years of high interest rates saw financial covenant breaches continue to be more prevalent in leveraged buyout financings. As such, in several circumstances, lenders were commonly asked to waive or tolerate financial ratio breaches, leading to flexing the terms and conditions of such financings. The flexed terms often include an increase in their pricing and the tightening of certain negative covenants such as incurrence of debt, permitted acquisitions and investments, and sometimes introducing a capital expenditures cap. In 2025 lenders continued to be observed requiring a higher percentage of equity in the acquisition capital structure, which in turn propelled an uptick in rollovers and the use of contingent payment structures. Despite lenders remaining selective, credit in Canada continues to be available in the market, with a range in financing of approximately 3.0 to 4.5+ times EBITDA for secured financing, depending on the type of industry and assets available for security. In the past 12 months, the Bank of Canada has cut its key interest rate 225bps to 2.75%, which has begun to rebalance leverage in negotiations between lenders, on the one hand, and sponsors and borrowers, on the other.

Deals involving a consortium of private equity sponsors are common in Canada, particularly in light of the role played in private equity by public sector pension plans and other quasi-governmental vehicles. “Club deals” with multiple private parties and no clear majority controlling fund involved are less frequent, perhaps due to the relative size of Canadian deals, which tend to be smaller and thus tend not to have the same capital requirements as those in other markets.

It is not uncommon for a lead private equity investor to have provided for co-investment rights to its limited partners, or to partner with other private equity funds. In such cases, detailed shareholder rights are negotiated concurrently with the acquisition in a shareholders’ agreement for the platform company/companies. Introducing additional investors following the initial investment is also considered, although such circumstances require a careful review and often lengthy renegotiation of the shareholders’ agreement already in place.

In some instances, the limited partners wishing to participate in a co-investment opportunity may be required to invest through a special purpose investment fund set up and controlled by the sponsors. This allows the sponsors to effect such co-investment opportunity more expeditiously and avoid lengthy discussions, as such co-investors’ entitlements are limited to a participation in a limited partnership controlled by the sponsors.

Consideration structures in Canadian private equity transactions continue to be predominantly based on closing date financial statements (ie, an estimated purchase price is paid at closing), subject to a working capital (and other) adjustment upon completion of financial statements as of the effective time that is typically secured with a third-party escrow. In the case of privatisation transactions, fixed-price agreements dominate.

Parties continue to rely on earn-outs or other contingent consideration. Deal reporting studies are showing that transactions involving earn-out consideration represent approximately half of all transactions, up from 31% earlier in the decade. Certain of these earn-outs were quite substantial relative to the overall purchase price, and the terms of these earn-outs are becoming more creative.

The vast majority of private equity sellers are still relatively resistant to contingent consideration and will push to limit any recourse post-closing to the purchase price consideration by using representations and warranties insurance (RWI) or very time-limited indemnities and escrows. This approach differs from a typical strategic corporate seller, who may entertain an escrow, longer indemnities and contingent consideration.

Private equity buyers continue to rely heavily on RWI to enable vendors to access their consideration with fewer escrow and indemnification provisions. Although many deals continue to provide for indemnification escrows and robust indemnification clauses, the duration and scope diminished in the early 2020s, as there was a growing trend, particularly in competitive situations, of purchase agreements with public company-style representations and warranties packages with zero recourse after closing. This trend appears to have slowed down in recent years given recent market conditions.

Locked-box structures remain highly uncommon for private equity funds in private M&A in Canada, which continue to favour a traditional working capital adjustment as of the date of closing.

A detailed dispute resolution mechanism with respect to purchase price adjustments is a standard provision in Canadian private equity share purchase agreements, whether on the buy-side or the sell-side. Traditional features of this provision include the appointment of an independent third party who evaluates only the specific items identified in the disagreement, and the terms upon which the selling and the buying party are to interact and share information with this independent third party. Typically, this party’s decision is binding, and fees and expenses for the independent third party would be allocated between the buyer and seller in the same proportion that the unsuccessfully disputed amount submitted bears to the total amount of disputed items submitted to such independent third party.

Dispute resolution on other deal terms is typically through recourse to the courts. Arbitration (binding or not binding) is rare in Canadian private equity deals.

Conditions precedent to the closing of a private equity transaction vary considerably from one deal to another. Regulatory approvals (including the Competition Act and the ICA, where applicable) and required board and shareholder approvals are nearly universally imposed. In the case of other third-party consents (eg, material customers, landlord, etc), the conditionality of such provisions (required, best efforts, reasonable commercial efforts, no obligation) varies depending on the comfort level the private equity buyer has obtained in its due diligence, its familiarity with the other parties and its general operating practices. Financing conditions are less common and are typically found when the private equity buyer has substantial bargaining power over the target. Finally, a standalone condition that there be no material adverse effect between signature and closing is relatively common for a private equity buyer to require.

Prevailing market conditions during the COVID-19 pandemic had the effect of reducing closing conditions to a minimum as buyers were in a situation to require closing certainty. However, the marketplace has since trended back to a more balanced and less seller-friendly approach.

A “hell or high water” undertaking is sometimes accepted in private equity deals in Canada where there is a regulatory condition related to, for example, the merger review process or the foreign investment review process. As a practical matter, a full “hell or high water” undertaking is more likely to be provided in the merger review context than in the foreign investment review context. That said, the scope of “hell or high water” undertakings is negotiated and ultimately depends on the nature and regulatory sensitivity of the deal and business dynamics. For example, in the context of a “sellers’ market” and regulatory complexity, such undertakings may involve the sharing of risk (rather than being fully “hell or high water”) and/or specific remedial commitments.

Break fees are traditionally infrequently accepted by private equity-backed buyers in private transactions. However, at the height of the sellers’ market in 2021, many private equity sponsors provided limited guarantees and equity commitment letters to support break fees being demanded by sellers, with reports of break fees in approximately 17% of deals; that trend has waned in more recent years. Where a break fee occurs, it is typically tied to a failure to secure financing or a failure to obtain regulatory approval. In a friendly public take-private transaction, a break fee is typically payable to the purchaser in connection with the exercise of a fiduciary out by the target board for a superior proposal.

Reverse break fees can arise if the transaction is conditional on financing, thereby limiting the buyer’s exposure if financing does not take place; however, those are even more rare. Whether a reverse break payable by the buyer to the target will be included is deal-dependent.

Purchase agreements structured as two-step (sign and then close) transactions typically provide for termination in the case of:

• mutual agreement;
• termination by the buyer (provided the buyer is not in default of its obligations) where the obligations of the seller cannot or have not been satisfied by an outside date; and
• termination by the seller (provided the seller is not in default of its obligations) where the obligations of the buyer cannot or have not been satisfied by an outside date.

The failure to obtain regulatory or government approvals, third-party consents or appropriate financing are the most frequent obligations triggering these termination rights. A typical longstop date (or “outside date”, in Canadian terms) is set on a case-by-case basis, taking into account the anticipated level of complexity of obtaining regulatory approvals (if any) and any other closing deliverables (such as required consents, necessary pre-closing transactions, etc).

Private equity buyers are not sympathetic to assuming risks related to a business before they become owners, instead adopting the principle of “your watch/our watch” for all matters. However, risk allocation can be more tempered in a competitive auction process and, depending on the nature or extent of diligence conducted and the comfort level, with (or pricing adjustment in light of) known risks.

Sellers in Canadian private equity transactions seek to limit liability through:

• the use of materiality thresholds and knowledge qualifiers in providing representations and warranties;
• the application of baskets and deductibles (ie, imposing minimum thresholds that must be obtained before out of pocket);
• shortened durations for representations and warranties; and
• reducing the cap on indemnification.

The duration of representations and warranties in a non-insured deal typically ranges from 12 to 24 months (with carve-outs for tax, fraud, environmental or specific representations such as fundamental representations, which can have a longer period). Following US trends, where fundamental representations used to be provided for an indefinite term, these too are restricted in time, although often longer than the general duration for other representations. As a result, sophisticated private equity purchasers have sought to expand the definition of fundamental representations beyond what was covered historically (share ownership and authority to sell) to include core zones of risk, such as intellectual property, with varying levels of success. However, in a sellers’ market, as was seen during the COVID-19 pandemic, the success of such an approach was more limited.

Indemnification provisions in private M&A in Canada range anywhere between 10% and 100% of the purchase price, and may even go uncapped. After a move towards US-style 10% and lower caps in the early 2020s, recent reports have shown a significant increase in caps, with the average at approximately 64% of purchase price.

In recent years, Canada has seen a growing number of transactions involving representations and warranties insurance, especially in transactions involving private equity investors, as discussed further in 6.10 Other Protections in Acquisition Documentation.

In Canada, who gives the representations and warranties in a private sale transaction (whether the target company/management or the shareholders/private equity fund) is not a crucial argument, as indemnification will come from the sellers regardless of who gives the warranties. A private equity seller will typically represent as to its share ownership, capacity and due authorisation to sell the shares, as well as antitrust thresholds, where applicable, and will work closely and diligently with management to ensure the company provides comprehensive operational representations.

A private equity seller will necessarily seek to limit liability as much as possible, thereby maximising returns for its investors within a shorter time period. However, as sophisticated buyers, funds are also accustomed to accommodating relatively robust representations and warranties on the target company, including:

• the accuracy and completeness of financial statements;
• that there are no undisclosed liabilities;
• a list of material contracts;
• that there is insurance coverage in place;
• warranties provided to customers;
• material compliance with the applicable laws for a limited look-back period;
• pending and threatened litigation;
• relationships with material customers and suppliers;
• material compliance with employment and benefits laws;
• a list of required consents, notifications and regulatory approvals;
• a list of owned and leased real property;
• compliance with environmental laws and the availability of environmental reports;
• breaches of privacy, anti-spam, cyber-risk and anti-corruption policies and laws;
• IP ownership and infringement; and
• the status of IT and information systems.

Private equity sellers will conduct a thorough disclosure exercise with management and external counsel to ensure that all statements in the representations can be confirmed, and to identify all carve-outs or disclosures required to limit the scope of the representations given in light of all known facts. In the context of transactions involving representations and warranties insurance policies, a buyer will typically require comprehensive representations and warranties, as the overall liabilities of the sellers will be limited to a small fraction of the purchase price (sometimes with exceptions for fundamental and tax representations, fraud and special indemnities). As a result, representations and warranties are typically easier to negotiate between buyers and sellers where such policies are in place. Also, buyers will typically require a materiality scrape provision that will facilitate the determination of whether or not a breach has occurred and the amount of damages incurred.

As mentioned above (in the absence of representation and warranty insurance), a private equity seller’s representations can be limited by pervasive qualifiers, in time (12 to 24 months), by capping the indemnification (as low as possible – noting trends in Canada appear to diverge from the low, US-style caps), and applying de minimis thresholds such as deductibles or tipping baskets.

The contents of a data room are not used in Canada against representations and warranties; instead, a disclosure schedule that lists relevant items from the diligence conducted is annexed to and forms an integral part of the purchase agreement.

Representations and warranties insurance has become commonplace in Canadian transactions. Canadian bidders have been adopting this framework to provide a competitive edge (or to ensure they do not lose one to their US competition), and have become comfortable and familiar with the mechanics. Insurance has provided an attractive option to private equity purchasers purchasing companies from management sellers who remain engaged in the business post-closing, as the tension of possible claims is effectively eliminated and shifted to the insurer.

When first introduced, indemnification provisions in purchase agreements with representations and warranties insurance policies provided a “first recourse” against the sellers (often for a value not exceeding 0.5% of the enterprise value after having applied a deductible – often in the same amount) before accessing the policy. As a result, sellers had some “skin in the game” before the policy would kick in. Policy premiums are reduced when this structure is used.

There was a trend in larger private equity transactions to have vendors benefiting from public company-style representations and warranties packages with zero recourse after closing, with buyers relying entirely on the representations and warranties insurance policy. However, as the sellers’ market has cooled, mid-market private M&A and a majority of the large private M&A involving private equity investors has reverted to involving representations and warranties insurance with at least some vendor “skin in the game” and, in many cases, a re-emergence of reliance on vendor indemnification and escrows.

While litigation does arise in private equity M&A, Canada is not as litigious in approach as its neighbours south of the border. In Canada, the court can generally order that the losing party pays the litigation fees to the winner, which in itself is a deterrent. The most common disputes pertain to purchase price disputes, where the dispute procedure is via an independently appointed accounting firm and is generally settled before recourse to the courts. Warranties and indemnification clauses pertaining to third-party claims can also lead to litigation (before the courts or an arbitrator, as opposed to an accounting firm). Most M&A disputes in Canada that have resulted in court rulings have arisen from broken deals during the interim period of a two-step transaction (eg, from a refusal by the buyer to close).

Private equity companies consider both public and private targets in Canada, but there is considerably more volume in private company targets than public. This may be due to the relative number of attractive targets, the level of comfort the private equity has in the privatisation model and the additional level of complexity and uncertainty required in obtaining requisite shareholder approvals, and fiduciary out provisions elevating deal risk in public company transactions. The public-to-privates by private equity firms that do occur are very rarely done on a hostile basis; generally, the negotiations are friendly and the transaction is ultimately supported by the target board (and significant shareholders, where possible). Recent years have continued to see several high-profile go-privates in Canada annually.

In a public-to-private deal, the target board (or a special committee of the board formed of uninterested members in the transaction) is a key actor in the negotiation process. The committee’s recommendation, and the board’s ultimate recommendation, to the company shareholders, together with fairness opinions (and formal valuations, where required) are essential to getting these deals across the finish line.

Holdings of more than 10% of the equity of a public company in Canada trigger the filing of an early warning report, which provides public disclosure of the shareholdings of the holder. Holders of more than 10% of the equity of a public company in Canada are considered “insiders”. An early warning report consists of the dissemination of a press release and the filing of an early warning report form on the issuer’s profile containing prescribed information on SEDAR+ (the System for Electronic Document Analysis and Retrieval at www.sedar.com – the website used by Canadian reporting issuers to file public securities documents with the Canadian Securities Administrators).

Crossing the 10% equity holding threshold of a public company also requires concurrent insider report filings on SEDI (the System for Electronic Disclosure by Insiders at www.sedi.ca – the browser-based service for the filing and viewing of insider trading reports and required by the Canadian provincial securities regulators). An insider report outlines the current holding of insiders of an issuer. Insider reports are typically required to be updated within five business days of any changes to the holdings of an insider (a director, officer or 10%+ equity holder of the issuer). The use of derivatives and options to increase economic exposure is a key consideration when determining whether a private equity firm has triggered a public disclosure obligation.

Subject to limited exemptions, the threshold for triggering Canadian takeover bid rules is the acquisition of a “bright line” 20% test. If a purchaser acquires 20% or more of a class of voting securities of the target, whether alone or working in conjunction with other parties (a purchasing group), the purchaser will be required to offer to purchase the shares of all of the registered shareholders of the same class, unless an exemption is available.

Both cash and share deals (or a combination thereof) can be used as consideration. However, the issuance of shares is most common where the purchaser is a public entity itself, as valuation is facilitated with public share prices. As such, private equity transactions tend to be cash deals.

It should be noted that there has been a growing use of earn-out provisions in an effort to bridge valuation gaps between buyers and vendors. For public company take-private deals, these can take the form of contingent value rights (CVRs – securities that provide for shareholders’ right to receive certain additional benefits/payments upon the occurrence of specific events, such as earning thresholds, etc, over a period of time).

Takeover bids in Canada can be subject to conditionality but cannot be conditional on financing. Unlike the UK, for instance, conditions beyond regulatory approvals may be negotiated.

Other privatisation structures can be presented to shareholders at a meeting, and if the requisite approvals are obtained (two thirds, as well as any “majority of minority” that may be required), the transaction may proceed in accordance with the terms of the negotiated agreement. In some cases, this is done pursuant to a court-sanctioned plan of arrangement (similar to the UK scheme), while in other cases it is completed by an amalgamation.

A number of privatisations completed by private equity-backed buyers in Canada are for issuers that have not conducted lengthy strategic processes and where the shareholders have a general appetite to exit quickly. In such cases, the purchasers may succeed in obtaining more favourable (and more certain) protections, including break fees, “force the vote” provisions, non-solicitations and the right to match any unsolicited superior offer. However, in more competitive processes where the public target is known to be “in play”, the seller may push to have protections of its own.

In Canada, there is a 50% minimum tender requirement for all formal bids. Bids must be open for a minimum of 105 days (subject to the target’s ability to shorten the period under certain circumstances). If at the expiry of the initial bid period the minimum tender requirements and all other conditions of the bid have been satisfied or waived, the purchaser must extend the period for at least ten days to allow additional shareholders to tender. At the expiration of the bid period, the purchaser takes up the shares and pays the tendering shareholders. If 90% of the shares have been tendered and taken up, the shareholders of the remaining 10% can be forced to tender their shares through statutory mechanical “squeeze-out” provisions.

Where fewer than 90% but more than two thirds of the shares (or 75% in the case of some British Columbia corporations) have been taken up, the purchaser must proceed to a second-stage “squeeze-out” transaction to purchase the remainder, which generally requires the approval of two thirds (or 75% in the case of some British Columbia corporations) of the shareholders and possibly a majority of the minority shareholders.

It is common (and nearly always a practical prerequisite in the case of private equity-backed privatisations) to obtain lock-ups from principal shareholders, if accessible. Undertakings may be “hard” (no out) or “soft” (out for superior offer) for major shareholders, although it is more difficult to obtain hard lock-ups in competitive processes. As private equity-backed privatisations tend to be “friendly”, directors and officers will also be asked to execute soft lock-ups. Under Canadian securities laws, shares tendered to the bid can be used by the buyer to vote in favour of the second-stage squeeze-out.

Equity incentive plans are commonly used in Canadian private equity investments. Stock option plans are most frequently implemented (with straight time vesting provisions and/or performance vesting criteria). The option pool is typically anywhere between 5% and 20% of the outstanding common equity. Stock options have historically been used by private equity firms in Canada as an effective means of incentivising management teams; however, tax and structuring complexities can arise for non-resident individuals.

Most private equity investors in Canada focus on strong management teams when identifying attractive targets. Where a management group is included in the selling parties, rollover arrangements for a minority position are considered, and such members execute a shareholders’ agreement with the private equity and any other institutional investors. Sweat equity is not common for companies of the size and stage a Canadian private equity fund is typically targeting.

Investments may be in the same category of shares as the institutional investor, or distinct, and may be voting or non-voting. Notwithstanding scenarios where existing management continues to hold a significant stake in the company, private equity investors will typically impose or structure the management investment so as to facilitate decision-making and approvals required to proceed with the private equity fund’s expansion strategy without management consent or blocking such decisions. These mechanics may include non-voting shares, shareholders’ agreement undertakings, or the appointment of agents or proxies for such management shareholders.

Leaver provisions are negotiated, and different private equity funds take different approaches to management equity in cases of termination and departure. Leaver provisions are almost universally found in stock option plans, but are more nuanced and negotiated in the case of shareholders’ agreements.

Generally speaking, unvested stock options will terminate concurrently with the last date of employment, whereas vested stock options will remain exercisable for a period of time following the last date of employment (unless the employee has been terminated for cause). In such circumstances, management employees may become shareholders subject to the shareholders’ agreement in place, but the company may also have the right to “call” such shares in the case of the employee leaving the company, using a predetermined pricing arrangement equal to the fair market value, or some discount thereon depending on the circumstances of departure.

Similarly, although less consistently, the shareholders’ agreement may provide the company with the right to “call” any shares held by management in the case of termination or departure using predetermined pricing arrangements (again, varying depending on the circumstances of departure). In some cases, particularly where management continues to hold a significant stake in the company, management shareholders may negotiate the right to “put” their shares, forcing the company (or other shareholders) to redeem or purchase the holder’s shares in certain cases of departure, using predetermined pricing arrangements. In the absence of specific leaver provisions, management shareholders are bound by obligations of (and benefit from rights accorded to) other shareholders, regardless of their status as an employee.

Vesting provisions vary from one stock option plan to another, with time vesting over a period of up to five years being the most common. However, performance vesting criteria (based on EBITDA, for example) are also applied. Typically, unvested options will be accelerated upon the occurrence of a liquidity event.

With the growing number of US private equity funds investing in Canada, there is a growing trend of having a portion of the stock options granted to managers vesting only upon the private equity fund having received a multiple of its capital in the target (for example, 1x, 2x or 3x), provided that management is still employed by the target at the closing of a liquidity event.

Non-competition covenants are enforceable in Canada (except in Ontario as it relates to non-competition clauses found in employment contracts of non-managerial staff) if they are crafted appropriately and are reasonable in terms of duration, scope and territory. Non-solicitation covenants and non-disparagement undertakings are also customary. Non-competition covenants are common in business acquisitions but are unenforceable in the province of Ontario in the case of mere employees (ie, they are only enforceable for individuals in president or chief-level positions and for executives who are shareholders in relation to a sale of business).

In an employment agreement, the upper limit for a top executive in terms of a non-compete is typically up to two years. However, most enforceable covenants of late have been in the 12-month range. A private equity purchaser will often seek to obtain a seller non-compete from exiting management shareholders (in each case in their capacity as shareholders) for the following reasons:

• employment non-competes are no longer permitted in certain provinces; and
• in provinces where employment non-competes are still permitted, the scope of protection under a shareholder non-compete is generally for a longer period than non-competes tied to employment.

Since June 2023, the Competition Act has included a criminal provision prohibiting unaffiliated employers from agreeing “to not solicit or hire each other’s employees”. As with the general cartel provisions, this provision includes an ancillary restraints defence. According to guidance issued by the Bureau, this provision does not require that the unaffiliated employers be competitors or potential competitors, which is unlike the framework that applies to the general conspiracy provisions in the Competition Act. This guidance also makes it clear that the provision applies only to agreements to not solicit or hire “each other’s” employees, with the result that “one-way” restraints (ie, restraints that only apply to one employer) are not subject to the provision. However, when there are separate agreements between two or more unaffiliated employers that result in reciprocating promises to not poach each other’s employees, then the Bureau may take enforcement action.

Accordingly, non-solicit clauses or other employee-related provisions in transaction agreements should have regard to this no-poaching prohibition. In particular, provisions that go beyond what may be typical in duration and scope should be considered closely to ensure they are reasonably necessary to achieve the objective of the broader transaction agreement.

Management shareholders do not typically benefit from robust minority protection, though they will typically have some limited protection under corporate statutes through majority and supermajority shareholder approval requirements as well as remedies in the face of oppressive conduct against the corporation.

Anti-dilution protection (pre-emptive rights) may or may not be accorded to all shareholders on a pro-rata basis, although this is the most likely to be accommodated by private equity partners.

It is rare for a minority management position to have veto rights, which are typically in favour of the private equity investor and any other institutional investors holding material positions. If a founding member of management continues to hold a substantial percentage of equity, certain veto rights might be granted, but such rights are highly dependent on the circumstances.

Similarly, whether or not a management team (either collectively or certain executives) has board appointment rights depends on the proportionate control of the management stake. Where management is on the board, this is most commonly tied to the position of the CEO.

The same is true of exit rights. It is rare to see management have any right or control of the private equity exit. Shareholders’ agreements tend to be crafted to provide for a “drag” provision for all shareholders. A management shareholder would need to have a considerably large percentage of the company for a private equity investor to entertain the idea of giving this power to management.

Private equity funds typically seek maximum control over their investment, in terms of board oversight and veto rights. The board is customarily controlled (majority-composed) by the lead private equity investor. Veto rights requested can include a variety of items, including:

• consents required as to any proposed corporate restructurings, acquisitions or divestitures;
• the incurrence of additional debt;
• the issuance of additional equity;
• budget approvals;
• changes to key management; and
• a change to the head office location.

Information rights are also regularly provided to institutional investors, including quarterly financial reporting, management reports and forecasts, details on pending or threatened litigation, and any other data required for the fund’s tracking.

Courts in Canada will generally not pierce the corporate veil, except in very unusual circumstances, such as the company being used to shield against illegal or fraudulent acts.

Sales to foreign (mostly US) private equity firms have dominated recent exits in Canada. Private equity exits through M&A and secondary buyouts have been the most prevalent.

While dual-track processes are sometimes considered, private equity funds have been opting for faster exits with immediate liquidity, without the leeway required to set up for a public offering. The IPO exit market in Canada remained stagnant in 2025.

In line with the broad trend internationally, recapitalisations and continuation vehicles have grown increasingly common in Canada in recent years, including as private equity sellers’ traditional exit strategies have continued to struggle with lower valuations and challenging public market opportunities.

Private equity funds will typically include sophisticated drag mechanisms in their shareholders’ agreements to ensure that they can force an exit on the shareholders of a portfolio company.

In practice, these provisions rarely have to be enforced as private equity funds will rely instead on the co-operation and willingness of minority investors to participate in the sale. There is no typical drag threshold in Canadian jurisdictions, other than in the public company context (of 90%+ tendering to a bid under a statutory squeeze-out or more than two thirds but less than 90% tendering to a bid for a second-stage squeeze-out). In the private company context, this is a contractually negotiated threshold.

Tag rights are sometimes granted to minority shareholders (including management), especially in the case of change of control transactions. There is no typical tag threshold in Canada.

However, institutional co-investors will be required to fully tag along with any sale by the private equity sponsors (subject to certain limited exceptions).

In addition to any escrows that may be required by the applicable stock exchange on which the target is to be listed (typically applicable to companies with less than CAD100 million market cap), the underwriters will typically request lock-ups from private equity shareholders who do not sell concurrently with the IPO for a period of 60 to 180 days following the offering. Arrangements are sometimes implemented to provide for board nomination rights and registration rights (secondary prospectus sales).