With an economy technically in recession and major uncertainty from its largest trading partner, Canada continues to draw private equity activity at historically high levels.

The country’s energy surplus and the government’s defense-industrial policy are both combining to create a distinctive PE investment case despite the macroeconomic and US trade headwinds.

Total Canadian private equity-backed deal volume — including buyouts, add-ons and exits — reached USD 30.28bn across 156 deals in 1H26, the country’s second-highest first half on record after 1H25’s USD 38.45bn over 139 deals, according to Mergermarket data.

Source: Mergermarket, data correct as at 15-Jul-26. Data includes add-ons and portfolio exits.

The artificial intelligence infrastructure boom is largely driving investment, particularly in power generation, several market advisors said.

Canada’s abundance of cost-efficient natural gas and hydro power puts it in a prime position for the challenges of massive data center infrastructure buildouts, said David Lewin, lead senior partner in the technologies group at Novacap.

“Canada is one of the few industrialized countries with significant energy oversupply,” Lewin said.

Morgan Stanley Infrastructure Partners, for one, recently invested in an Alberta gas-fired plant tied to hyperscaler demand and told Mergermarket it plans to shift capital toward geographies like Canada.

The largest buyouts of 2026 so far targeted renewable power companies Boralex and Northview Energy, as well as data center developer and operator QScale. KKR funds’ sale of data center liquid cooling company CoolIT for USD 4.75bn in cash is among the year’s largest Canadian exits.

That opportunity extends into the middle market, shining a light on “anything that’s related to those businesses,” such as HVAC manufacturing and services, noted Hélia Taheri, partner in the private equity and M&A group at Stikeman Elliott.

Parliament push

Government policy is another driver. Sunil Sharma, partner at BDO Canada and the national leader of its transaction services and private equity practice, said increased sponsor interest in infrastructure and aerospace and defense (A&D) has been “largely driven by [Prime Minister] Mark Carney and the political focus on building within Canada.”

This is particularly prevalent in A&D. The Canadian government pledged to increase defense spending to 5% of GDP by 2035, which would amount to an estimated CAD 159bn at that time. This is alongside plans to increase the share of domestic procurement to 70%.

“You can see massive opportunity in Canada for the whole [defense] ecosystem,” Lewin said, noting that more than 90% of the country’s defense industrial base consists of small to mid-sized businesses.

Sharma pointed to the government’s recent CAD 2bn investment in a partnership with defense giant General Dynamics as evidence that Ottawa intends to follow through.

“It does seem like the government is quite keen in taking steps to walk the walk around its talk on defense spending,” Sharma said.

Reality check on record numbers

Still, deal advisors cautioned against treating 2025 and 2026 activity levels as a new normal for Canada.

“I would maybe call it a reset to a higher baseline than before,” said Stikeman Elliott’s Taheri.

Sharma also noted that 10 megadeals in 2025 made that year “a bit of an outlier.”

Buyouts and exits reflect the global picture — a bifurcated market where large, top-quality assets are trading at robust valuations, while lower-tier assets remain out of favor.

The advisors pointed to opportunities in sectors with long-running catalysts such as wealth management and insurance, food and beverage, and mining.

“What you’re seeing is a delineation between winners and losers,” said Max Spearn, national leader in the corporate law group at Miller Thomson. Deals in sectors such as automotive face a more complicated path, though not an impossible one, he and Taheri noted.

Source: Mergermarket, data correct as at 15-Jul-26. Data includes add-ons and portfolio exits. 

The disruption to dealmaking from macro headwinds, particularly around US tariffs, has died down as trade-policy shifts become relatively normalized, advisors said.

Unlike in 2025, when the market treated US tariffs as a one-time shock that was hard to quantify, buyers and sellers today are more comfortable with gauging businesses’ resilience to rapid trade policy changes, Taheri noted.

“Tariff uncertainty is becoming more of a recurring event,” she said.

Private equity investors don’t view the North American market as divided at the 49th parallel between US and Canadian assets, added Michael Caruso, co-leader of the private equity group at Miller Thomson.

“They’re really thinking in terms of North American capital deployment,” Caruso said.

Instead, investors are focused on developing conviction in investments rather than searching for hidden opportunities, he said. In this regard, Canada’s stable environment and sophisticated management teams continue to offer plenty of valuable targets.

“Deals are taking longer to get done,” said Spearn, “but ultimately there’s still a lot of activity.”