A letter of intent signed in November 2025 relied on assumptions that seemed sound at the time: stable U.S. market access, predictable federal policy, and a cooling interest rate environment. By March 2026, those assumptions carried a heavy price tag, one that is now being deducted from the seller’s proceeds.

This scenario has become the defining dynamic of the first half of 2026 across British Columbia’s mid-market. Transactions in the $10-million to $75-million range—the corridor where most BC founder exits and strategic acquisitions occur—are facing intense renegotiation pressure at the letter-of-intent stage as buyers apply new lenses to deals priced for a different economic climate.

Two primary forces are driving this reset. The first is tariff exposure. U.S. tariffs introduced in April 2025 created measurable revenue uncertainty for BC businesses with American customers, and that risk is now being priced into due diligence. Buyers are applying what advisors call “tariff-exposure haircuts”—discounts to projected revenue that reflect the possibility of compressed sales volumes, eroded margins, or the need to renegotiate customer contracts under the new trade regime.

The second force is the interest rate environment. While the Bank of Canada has adjusted rates, the impact of these movements has not been uniform across commercial lending products, and the cost of leveraged acquisition financing remains materially higher than during the low-rate era that shaped many sellers' valuation expectations. Debt-funded buyers—private equity firms and strategic acquirers using credit facilities—are finding that the EBITDA multiples that worked in 2022 or 2023 no longer pencil out at current borrowing costs.

The result is a compression in EBITDA multiples across the BC mid-market. Canadian Venture Capital and Private Equity Association data for Q1 2026 indicates declining deal volume and aggregate value in the mid-market segment, a pattern consistent with buyers and sellers failing to bridge the valuation gap rather than transacting at distressed prices.

This gap is the central story. Sellers who received informal valuations or early-stage term sheets in 2024 remain anchored to those figures. This is rational; a founder who spent years building a business toward a $40-million exit does not easily accept a revised offer of $32-million because a buyer’s spreadsheet now includes a tariff sensitivity tab. However, from the buyer’s perspective, the revised number reflects genuine risk that was not present 18 months ago.

The BDC's Spring 2026 Business Outlook Survey captures this confidence dynamic. Small and medium-sized enterprise owners are navigating elevated uncertainty regarding input costs, labour, and trade policy, which is suppressing both the appetite to sell at reduced valuations and the willingness to acquire at prices that do not yet reflect a clear macro trajectory.

MNP's Transaction Advisory Services practice and KPMG's mid-market deal surveys have both flagged the valuation expectation gap as a primary friction point. This dynamic manifests in extended due diligence timelines, renegotiated LOI terms, and, in some cases, transactions that are paused indefinitely.

For sellers, the implication is uncomfortable but manageable. Businesses with clear revenue visibility—such as those with recurring contracts, domestic customer concentration, and limited direct U.S. tariff exposure—are maintaining their valuations better than those with significant export dependency. The tariff haircut is not applied uniformly; it tracks actual exposure. A BC SaaS company billing Canadian enterprise clients faces a different valuation conversation than a manufacturer shipping 60 per cent of its output across the border.

For buyers, the current environment offers a window for patient, well-capitalised acquirers. Cash-strong strategics and private equity firms with dry powder can move decisively on assets that leveraged buyers cannot competitively bid on. The logjam will resolve as sellers adjust expectations, macro clarity improves, or the most motivated sellers accept revised terms. Those who have completed thorough due diligence and can write a cheque without a financing condition are positioned to transact on favourable terms.

The broader signal for BC's business community is that the mid-market M&A pipeline serves as a leading indicator of owner confidence and capital velocity. When deals stall at the LOI stage, it reflects a broader uncertainty about forward earnings—the same uncertainty that influences hiring, capital expenditure, and expansion plans. The current valuation reset is a recalibration, and historically, such shifts create the conditions for the next cycle of deal activity. The question remains: who is positioned to act when the gap closes?