Strategic M&A Activity in the Canadian Energy Sector: Bids, Withdrawals, and Valuation Opportunities

The Canadian energy sector's M&A landscape in 2023–2025 has been shaped by a delicate interplay of economic uncertainty, geopolitical tensions, and strategic sectoral shifts. While deal volume dipped by 6% in the first half of 2025 compared to the same period in 2024, the average size of megadeals-transactions exceeding $1 billion-surged, reflecting a market prioritizing scale and long-term value over frequency, according to the Canadian infrastructure and energy M&A outlook. This trend underscores how evolving bids and bidder withdrawals are not merely signs of volatility but signals of deeper market positioning and valuation dynamics.

Economic Uncertainty and Trade Policy: Catalysts for Strategic Caution

The U.S.-Canada trade tensions, including U.S. tariffs on Canadian energy exports and retaliatory measures, have introduced significant uncertainty. According to Torys LLP, these developments have prompted defensive acquisitions as companies seek to insulate themselves from potential market downturns. For instance, the $9.2 billion acquisition of Veren by Whitecap Resources in early 2025 highlights a strategic move to consolidate upstream assets amid regulatory headwinds, as noted in a Dentons analysis. Similarly, the $14.6 billion Neoen S.A. deal, led by Temasek and Brookfield, reflects a focus on renewable energy platforms that offer predictable cash flows in a high-uncertainty environment, according to Torys LLP.

Bidder withdrawals have also increased, particularly in cross-border transactions. Data from PwC Canada indicates that trade policy concerns caused buyers and sellers to adopt a cautious stance, with many deal processes delayed or restructured. This hesitancy is compounded by stricter foreign investment reviews in Canada and the U.S. "America First" initiative, which have added layers of regulatory complexity, as noted by Dentons.

Valuation Trends: Megadeals and Sectoral Shifts

Despite the decline in deal volume, the energy sector accounted for nearly 30% of Canadian M&A in H1 2025, generating $24.2 billion in value across 18 deals (Dentons). Megadeals have become the norm, with 39 such transactions averaging $3.0 billion in enterprise value (EV) in 2025's first half, according to Torys LLP. This shift toward larger, more strategic deals suggests that acquirers are prioritizing scale and diversification. For example, CDPQ's $10 billion acquisition of Innergex Renewable Energy Inc. in February 2025 exemplifies a platform play aimed at capturing long-term growth in renewables, as highlighted by Torys LLP.

Renewables remain a focal point, though their share of deals has dipped slightly from 41% in 2023 to 31% in 2024, per Torys LLP. Industry leaders, however, remain optimistic. Innergex's CEO described the market outlook for renewables as "very favourable," citing electrification efforts and stable regulatory support, noted in the Torys outlook. Complementary sectors like data centres, transportation, and transmission infrastructure are also attracting attention. Equinix's $15 billion joint venture with GIC and the Canada Pension Plan Investment Board for the xScale data centre portfolio is a case in point, according to Torys LLP.

Cross-Border Dynamics and Outbound Deals

While inbound deal activity softened in early 2025 due to trade tensions, Canadian investors have increasingly turned outward. Outbound acquisitions in the U.S. and Europe have risen as firms seek to diversify exposure and capitalize on favorable valuations abroad, the Dentons analysis finds. This shift is partly driven by anticipation of long-term trade policy changes and the need to mitigate domestic regulatory risks. For example, Hydro One's acquisition of a 48% stake in the East-West Tie Limited Partnership in 2024 reflects a strategic pivot toward cross-border infrastructure projects, noted by Torys LLP.

Structural innovations, such as earnouts and targeted divestitures, are also emerging to manage cross-border execution risks. These structures allow acquirers to align incentives and reduce exposure to regulatory or market volatility, Dentons reports.

Future Outlook: Navigating Uncertainty with Strategic M&A

As the year progresses, the market appears to be adapting to political and economic headwinds. With interest rates stabilizing and political tensions easing, dealmakers are operating with greater certainty. However, liquidity pressures persist, and private equity players are focusing on sponsor-to-sponsor transactions and strategic divestitures to optimize portfolios, according to Dentons.

For Canadian utilities and energy firms, M&A and divestitures are increasingly seen as tools for navigating the energy transition. The focus on renewables and infrastructure-aligned assets is expected to continue, supported by federal and provincial incentives aimed at boosting electrification and grid modernization, Torys LLP observes.

Conclusion

The Canadian energy sector's M&A activity in 2023–2025 reveals a market in flux, where bidder withdrawals and evolving bids signal both caution and opportunity. While trade tensions and regulatory complexity have introduced friction, the rise of megadeals and sectoral shifts toward renewables and infrastructure highlight a resilient, forward-looking strategy. Investors who can navigate these dynamics-leveraging defensive acquisitions, cross-border opportunities, and long-term asset growth-stand to capitalize on a market poised for strategic transformation.