A Canadian pulse on private equity

In Canada, full‑year 2025 private equity deal value reached $63.8 billion USD across 596 completed transactions, reflecting a recovery from mid‑year softness and improved supply of larger assets in Q4. Investor confidence strengthened into year‑end as credit availability improved and valuation expectations normalized. Early 2026 data suggests that while deal volumes in Canada remain broadly in line with last year, deal value has trailed the U.S. in the first two months of the year, reflecting a more cautious start as sponsors reassess valuation, financing conditions, and geopolitical risk.

Middle Eastern sovereign funds are increasingly active across North America, not just Canada. Their growth ambitions and social reforms are driving talent migration and capital flows into developed economies, providing new capital solutions and competing with domestic options. At the same time, there is uncertainty in the Middle East around the durability of these flows, particularly if higher energy prices and prolonged instability weigh on global risk appetite and transaction timing.

Canada’s private equity market exhibits several notable contrasts with global trends. First, while Canada’s recovery is similarly led by larger transactions, overall deal volumes remain subdued compared to historical highs. Across the Americas, deal value totaled $1.22 trillion USD in 2025 across 9,118 deals, while Canada contributed $63.8 billion USD and 596 deals, reflecting a stable but selective investment environment. This underscores investors’ continued focus on high‑conviction opportunities, operational strength, and sector alignment. Second, Canada’s outlook is increasingly shaped by federal policy initiatives that prioritize critical infrastructure and energy, directly supporting sectors such as data centers, grid resiliency, and transmission – areas essential for the AI-driven economy. This proactive stance stands in contrast to regions like EMA, where investor hesitancy persists and IPO activity remains limited.

Canada is also seeing innovation in liquidity solutions. Globally, secondary transactions continue to expand, with add‑on activity alone representing $650.9 billion USD across 9,683 deals in 2025. Canada benefits from this trend through greater participation from retail investors, ultra‑high‑net‑worth investors, and family offices, broadening the buyer universe for GP‑led solutions and selective exits.

Investor sentiment and fundraising remain cautious, but the market is far from closed. Although there is still significant capital available, global fundraising activity is at its lowest level in a decade, with commitments increasingly concentrated in larger funds. Canada is experiencing similar trends, as investors are selective and focused on investments that deliver sustainable cash flows and operational improvements, rather than relying on valuation growth alone. This environment has led to an increase in median buyout sizes, with sponsors prioritizing add-on acquisitions and platform growth in sectors that demonstrate pricing power.

Fundraising is concentrated in larger, established funds, with first-time funds struggling. LPs are showing a “flight to quality,” preferring to double down on proven GPs. Over-allocation and lack of liquidity are making LPs more selective, and DPI (distributions to paid-in capital) is a key metric for future allocations.

As the year unfolds, this caution is becoming more pronounced, with sponsors spending more time underwriting downside scenarios and delaying processes where valuation risk or operating exposure – particularly to fuel, freight, or energy inputs – remains elevated.

Capital is increasingly directed toward AI infrastructure and data centers, where rising demand and higher build costs are driving investment. Power constraints are adding to the strategic importance of these assets. The energy and natural resources sectors are also attracting significant attention, supported by favorable government policies and strategic investment from both domestic and international sources. Investments in critical minerals and energy projects are notable for their potential to deliver stable returns and address inflationary and geopolitical considerations. While demand fundamentals remain strong, pricing discipline has become increasingly important, with investors evaluating alternative and ancillary infrastructure opportunities where entry valuations are more defensible. There is a “gold rush” for data centres, driven by AI demand, but elevated valuation are pushing some private equity investors to look beyond core assets. As infrastructure and private equity strategies converge, lower return thresholds from infrastructure capital continue to drive pricing higher, prompting sponsors to pursue ancillary and enabling opportunities where risk-adjusted entry points are more attractive.

After a period of subdued activity, technology investments are regaining momentum, particularly in software and platforms that enable or protect against AI disruption. However, commercial validation remains a key requirement for investors. PE investment in the North American automotive industry is down (14B across 220 deals vs. double last year). Tariffs, supply chain volatility, and technology disruption (AI, EV mandates) are key factors. The sector is adapting to a new norm, and while challenging now, it is expected to emerge stronger and more resilient.

As we move through 2026, an emerging theme is increased interest in Canada’s defense sector. Rising federal defense spending and heightened geopolitical tensions are driving greater focus from private equity sponsors, both through existing portfolio exposure and new platform opportunities, with downstream impacts across defense-related supply chains.

While exit planning activity is increasing, realized exit volumes remain constrained. Sponsors are investing more time in preparing assets for market – professionalizing operations, strengthening financial reporting, and embedding productivity initiatives – before launching formal exit processes in what remains a buyer-leaning market. In the Americas, public listings have resumed primarily in the United States, while Canada is experiencing a gradual re-emergence of IPOs in technology and real estate. This is complemented by growth in secondary transactions and GP-led continuation vehicles, which are already enhancing liquidity and helping to establish clearer pricing for high-quality assets.

A structural shift is also underway in Canada, as the democratization of private markets expands access for retail investors and family offices. These developments are creating new pathways for exits and co-investments, particularly benefiting mid-market sponsors who face longer holding periods. By broadening the investor base and increasing market participation, these trends are helping to bridge valuation gaps and support a more dynamic exit environment.

As Canadian private equity leaders navigate a rapidly evolving market, several strategic priorities are emerging that can help position firms for long-term success.

1. Align investment strategies with policy-driven demand. Focus on platform opportunities in infrastructure, energy, and AI, where government initiatives and long-term sector trends support sustained growth and diversified exit options.
2. Build flexibility into exit planning. Structure portfolio companies for dual-track exit readiness, including both strategic M&A and secondary transactions or continuation vehicles. Early engagement with retail and high-net-worth investor channels can help expand the pool of potential buyers.
3. Emphasize operational value creation. In an environment where valuation multiples are constrained, prioritize strategies such as buy-and-build, advanced pricing analytics, procurement optimization, working capital management, and AI-driven productivity improvements at the portfolio level.
4. Increase focus on domestic opportunities. Canadian institutions are expected to allocate more capital to domestic investments, leveraging local market knowledge and policy alignment. This presents an opportunity for sponsors to source proprietary deal flow and accelerate co-investment activity within Canada.
5. Plan for prolonged uncertainty. Build flexibility into investment pacing and exit timing, stress-test portfolio exposure to energy and input cost volatility, and prioritize resilience and cash-flow visibility amid geopolitical risk.

By prioritizing these approaches, Canadian private equity firms can better adapt to market shifts, capture emerging opportunities, and drive sustainable value for investors and portfolio companies alike.

Over the next year, Canadian private equity is expected to see steadier investment, particularly in infrastructure, energy, and AI-related sectors. Improvements in exit options, such as secondaries and selective IPOs, are supporting market liquidity. While risks like tariffs, financing costs, and global uncertainty persist, Canada’s clear policy direction and strong resource base provide a solid foundation for growth. More Canadian capital is likely to flow into domestic opportunities, with a broader range of buyers at exit.

Canada currently has more alignment between business, policy makers, and government than ever before, making it an increasingly attractive destination for foreign capital, especially in infrastructure and energy. Relative to the US, Canada’s policy environment is a competitive advantage.

Looking ahead, several factors will shape the Canadian private equity landscape and drive growth. The outlook for 2026 remains constructive but increasingly dependent on calmer conditions taking hold that would likely release a backlog of well‑prepared assets currently being readied for market.

1. Confidence is returning, with larger, high-conviction deals leading activity, though overall volumes remain measured as investors adopt a more cautious and disciplined approach.
2. Federal policy continues to drive investment in priority sectors, such as infrastructure, energy, and defense, supporting execution despite heightened geopolitical uncertainty.
3. Liquidity options are expanding through secondaries, continuation vehicles, retail channels, and family offices, while traditional exit pathways remain selective and timing-dependent.
4. Sector focus is increasingly critical, with capital concentrating around AI-enabled infrastructure, defense-adjacent opportunities, and resilient technology platforms.
5. Canadian institutions are expected to increase domestic allocations over time, creating opportunities for sponsors aligned with policy priorities, cash-flow resilience, and operational value creation.