As interest rates look to fall even further over the next year, the appetite for mergers and acquisitions could increase. Undoubtedly, valuations may have crept higher across the board, with the TSX Index and S&P 500 both fresh off hitting new all-time highs. However, not every sector has been in a bull market.
And it’s some of these more challenged corners of the market that I believe could be ripe for wheeling and dealing as borrowing costs look to descend further from here. Though lower interest rates themselves don’t guarantee a wave of mergers to come, I do think that the stage might be set for dealmaking in the new year. Here are the two top companies I believe will become more active on the M&A front.
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Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) stock has had an uneventful 2025. The 7 & i Holdings deal isn’t happening, and it’s unclear what its next big M&A move will be. With the stock still in the red (by around 7%) so far this year, it’s not hard to throw in the towel, even as lower rates pave the way for an environment that’s more conducive to M&A.
Sure, market multiples may be on the higher end. But there are nice deals to be had in the convenience retailer space. As we enter a new age with lower rates, I believe Couche-Tard will not take too long to start announcing deals. Until then, I’d look at shares of ATD as a turnaround play to benefit from the potential return of a “lower (rate) for longer” kind of environment.
As investors and analysts grow impatient while ATD stock stays stuck in the low-$70 range, I’d look to be a contrarian buyer. The growth-by-acquisition story is often misunderstood, but it may not be for long, as we enter a new year with Couche’s new management team on the hunt for strategic takeover targets.
Sure, they’re likelier to be smaller, tuck-in deals, rather than a perhaps sell-off-inducing blockbuster to the magnitude of a 7 & i. But, at the end of the day, I think smaller deals reduce the risk factor. The big question is whether Couche-Tard will look to expand in Europe, where it already has a strong presence, or Asia, where it has a relatively small presence, or if it’s fine sticking with North American deals. Time will tell. Either way, Couche-Tard can easily acquire its way to higher growth.
Constellation Software
Constellation Software (TSX: CSU) is another Canadian company that I expect will start making smart deals going into the new year as rates come down. Of course, small-cap tech valuations have become somewhat inflated, which may be a reason why the pace of deals hasn’t been as rapid as in recent years. Personally, I think management deserves the benefit of the doubt, even as some investors hit that sell button on weakness. At the end of the day, Constellation knows how to spot value in a high-growth corner of the software scene, and if it sees one of those “GARP” (growth at a reasonable price) plays, I do think it’ll be ready to ink a deal.
If valuations do come in across the board and rates fall, Constellation might be in for a dream scenario that’d allow it to produce serious value for shareholders. For now, the stock is down 23%, but don’t expect management to hesitate or rush if calls for more deals grow louder.
