Deal Law Wire


insight and perspectives on developments in mergers + acquisitions

Pharmaceutical M&A: strong performance expected to continue in 2015

In its December 2014 cover story, Financier Worldwide provides an overview of the factors in 2014 that provided, and will continue to provide, favorable conditions for the high value and volume of pharmaceutical mergers and acquisitions. In the first half of 2014 alone, there was a total value of $317.4 billion USD in M&A deals. Financier Worldwide identifies three reasons why the markets have been ripe for M&A: (1) pharmaceutical companies are making changes in the way they do business; (2) there is a rapidly-growing market and supporting industry in China; and (3) tax inversion regulations have been, at least historically, hospitable to M&A.

Business Changes

Pharmaceutical companies are adapting to healthier global markets by using their large cash reserves and credit supplies to make incremental changes in the way they do business. They have begun strengthening their commitments to long-term objectives, specializing their offerings, and divesting non-core business units. Financier Worldwide highlights the “particularly long product life-cycles” as being the cause of these changes and a decrease in internal research and development a result. In addition, private equity firms such as the Carlyle Group and Blackstone Group are becoming major players in the pharmaceutical industry, focusing on “low-growth, mature drug portfolios.”


China’s demand for pharmaceuticals is expanding rapidly, and with it, a national industry to support it. It is the third largest market for pharmaceutical products globally, due to the size of its population, aging demographics, and a growing middle class. Over and above that, a recent increase in what Financier Worldwide refers to as “Western” diseases is putting further demands on the pharmaceutical market. The government has recently committed to providing universal healthcare in the coming years, which will take China’s share of global pharmaceutical spending from roughly 8% to 15%.

Tax Inversions

A tax inversion, simply, is the process of re-incorporating a company in a foreign jurisdiction whose tax laws are more favorable than those of the jurisdiction in which the company is ordinarily resident. In the first three-quarters of this year, there was over $315 billion USD in tax inversion deals in the pharmaceutical industry, which is more than four times the amount in the same period in 2013. But this may all soon change, as regulators in the United States and Ireland—jurisdictions that have traditionally hosted many of these deals—have issued new guidelines and regulations that will halt this type of transaction.

Financier Worldwide predicts that M&A in the pharmaceutical sector will continue strong for the foreseeable future, as companies use it strategically in pursing their objectives.

The author would like to thank Reuben Zaramian, articling student, for his assistance in preparing this legal update.

M&A: a leading growth strategy in 2015

The economic fundamentals that drive M&A are back at pre-crisis levels, states a new survey published by KPMG. The number of acquisitions that companies will undertake is expected to increase in 2015: 82% of respondents plan at least one acquisition and 10% anticipate 11 or more acquisitions next year.

Indeed, the survey suggests M&A is an attractive growth strategy for the upcoming year since financing conditions are favourable and organic growth prospects appear to be limited. Fundamental M&A drivers such as healthy credit markets, large cash reserves and steady job growth rates are aligning and ready to light up deal activity in 2015.

As we discussed in a previous blog post, growth by way of acquisitions is increasingly being viewed by potential acquirers as a vehicle enabling them to expand into new geographical markets or enter into new lines of business. What’s more, companies looking for exit strategies generally prefer selling to a strategic buyer rather than attempting to raise equity or debt or undergoing an initial public offering.

The survey also reports that deal values are expected (on average) to increase in 2015, with 27% more survey respondents than in KPMG’s previous annual survey expecting average deal values to be above $250 million. Bigger deals are on the horizon and the study shows that investors are becoming more selective and willing to pay a premium for high quality targets.

Industry-specific challenges and opportunities

The KPMG survey predicts that the most active industry sectors will be healthcare/pharmaceuticals/life sciences and technology/media/telecom.

Executives surveyed in these sectors cited the valuation disparity between buyers and sellers and the identification of suitable targets as the most challenging aspects of planning an acquisition. Life sciences respondents also cited regulatory issues as a source of difficulty, while those in the technology sector were more concerned with post-deal execution strategies.

The author would like to thank Carole Gilbert, articling student, for her assistance in preparing this legal update.

Technology M&A on the rise in 2014

The data is in and 2014 is shaping up to be a blockbuster year for M&A in the global technology sector. According to Ernst & Young, the aggregate value for technology M&A deals worldwide in the third quarter of 2014 set a new post-dotcom-bubble era record of US$73.7 billion, which is up 41% from Q2. In addition, by the end of Q3, the aggregate value for technology deals in 2014 already totaled US$192.7 billion, which is 2% higher than the total value for 2013. A new record was set since the year 2000 in Q3 for volume of deals, with 923 deals reported, while a record was tied since the first quarter of 2000 with 19 deals above $1 billion in the third quarter.

So what is driving M&A growth in the technology space? A highly liquid capital market and competition in the technology sector have created a favourable acquisition environment. Further, according to a recent report in Financial Worldwide, private equity funds are sitting on record amounts of liquid capital, acquirers have compiled substantial cash reserves, interest rates remain low for well-capitalized buyers and companies are looking to expand into new areas in order to generate growth and remain relevant.

According to Deloitte, some trends in the technology M&A market this year include:

  • The convergence of technology, media and telecommunications (TMT): A shift is occurring with (i) large companies that began as either a technology, media or telecommunications company merging into a joint space as the market evolves, and (ii) companies that actually began as a combination of the three subsectors growing in both size and influence. Retail payment and processing, which has experienced rapid growth over the past few years stemming from increasing numbers of consumers purchasing goods and services online, is a prime example of TMT convergence. Mergermarket reports that in terms of deal count, TMT targets have attracted the most deals during any Q1-Q3 period on record.
  • The monetization of technology trends such as cloud computing and big data/business analytics:
    • Cloud computing – Interest in cloud computing continues to grow as it allows companies to minimize capital investments and reduce operating expenses.
    • Big data/business analytics – Leading companies are using big data and business analytics as a central way to help generate better products, performance and profitability in order to surpass their competitors. The financial services industry is one of the industries driving the demand for big data as companies require larger market data sets and a greater level of detail for forecasts, predictive models and trading.The acquisition by SAP of Concur Technologies, a cloud-based travel-and-expense management vendor, was the top deal by dollar value in Q3 2014 at US$8.3 billion. It also demonstrates the importance of both cloud computing and big data analytics, as Concur is the latest in a series of cloud-based acquisitions by SAP and SAP plans to integrate its HANA system analytics platform to bring advanced analytics and performance to business-expense analysis.
  • Cross-border M&A: Greater innovation and faster technology adoption in emerging markets such as Brazil and China is leading to more cross-border M&A deals as companies worldwide pursue market and revenue growth. According to Ernst & Young, in the third quarter of 2014 aggregate cross-border deal value increased 168% from the second quarter to US$32.7 billion.
  • Divestitures: As certain technology sectors mature, companies are selling off underperforming product and service offerings and focusing on redefined “core” offerings, thus unlocking value and funding future acquisitions.

So what does this mean for technology M&A into Q4 2014 and into 2015? A survey conducted by KPMG found that 62% of respondents predict that the technology/media/telecom industry will be one of the most active in terms of M&A in 2015. The survey also revealed that the main trends that will drive M&A in this sector include mobile technology (54%), cloud computing (48%) and data analytics (47%), while the chief reasons for technology M&A deals will be access to intellectual property and/or talent (50%), bolt on acquisitions to enhance new products (42%), the acquisition of innovative products or technologies (41%), the desire to enter into markets (41%), and the desire to expand existing technology platforms (40%).

As pressure increases on technology companies to enhance value and generate growth, it is clear that M&A has become a preferred growth strategy, boding well for M&A activity in the last quarter of 2014 and into the new year.

The who, what, where, when and why of PMI

As discussed in a previous blog post, a successful post-merger integration (PMI) can allow an acquirer to realize the full value of the transaction. However, PMI is often an underestimated challenge. Recent publications released by Mergermarket and PwC consolidate the views of M&A experts and discuss best practices when engaging in the PMI. Below we discuss these publications’ key takeaways.

When should integration begin?

The best practice is to start thinking about PMI as early as possible, even before proposing the transaction. Considering PMI during the inception of the deal and during due diligence will allow dealmakers to identify sources of value and risks that may be lurking post-closing. PMI is especially important in the case of a strategic buyer (one attempting to fold an acquired business into the buyer’s organization) and in transformational deals (where the combined entity acquires new markets, channels, products, or operations in a way that is transformative to organization).

Who should lead the PMI?

The person best suited to lead an integration is a capable leader who has broad knowledge of the operations of the company. Ideally the leader would be well-respected, able to mobilize and motivate others, and well acquainted with the deal rationale. Practically speaking, the PMI leader needs to be freed up from regular responsibilities and needs to have capabilities to oversee the multi-dimensional role of PMI leadership.  

What approach should the combined entity take with its communications plan?

The experts agree that a good communications plan is important, especially when implementation of a PMI plan affects a large number of people in several business lines from both companies. Full communication, even at the outset of PMI when systems may not be integrated, is important to ensure issues are identified and addressed as early as possible. The risk is that poor communication leads to uncertainty, which breeds disruption. On the other hand, a successful communications plan can significantly improve the speed at which decisions are made and general confidence in the combined entity.

Where do the biggest challenges arise?

Transitioning IT systems, combining business operations, aligning organizational structures, and managing multiple locations pose the biggest challenges in PMI. Those companies which need to combine R&D functions also have a heavy task. Although the tendency is to focus on operational challenges, one of the biggest challenges in PMI is cultural integration (a topic we discuss here). The combined entity should take steps to integrate employees into new or modified methods of working. 

What additional factors must the combined entity consider in cross-border M&A?

Overwhelmingly, the experts agree that cross-border PMI must take into account the new legal and regulatory regime to which the combined entity will be subject. For example, the combined entity should think about labour and employment laws, compensation and benefits arrangements, permits and licenses, and financial arrangements. The company must also consider those things which add complexity to operations: foreign languages, cultural nuances, and time zones. This applies equally to dealings with the target and with the combined entity’s new customers, suppliers, and business partners.

Despite a robust due diligence process, challenges invariably arise during integration. The result?A longer-than-anticipated integration period.  However, PMI planned early in a deal, led by adept leaders, and with strong communications plans will allow companies to avoid many of the risks involved with complex PMI.

The author would like to thank Denise Gan, articling student, for her assistance in preparing this legal update.

IP due diligence: beyond the usual suspects

Conducting a due diligence review of intellectual property (IP) matters as part of a merger or acquisition has become commonplace with the growing importance of commercial IP.  While most lawyers are aware of a general need to protect the more popular forms of intellectual property (patents, copyrights and trademarks) in the course of a transaction, there are a number of specific nuances that should be taken into careful consideration to avoid potentially painful missteps.

Intellectual property rights are intangible rights having no physical characteristics, and are established through the legal frameworks that they operate under. Accordingly, IP rights are very sensitive to changes in legal and administrative policy. These policies have evolved over the years in light of a shifting legal landscape in which the public opinion, laws passed by legislators, judicial decisions and bureaucratic decisions have all had their role in reforming how the various systems operate.

The implementation of international treaty obligations and international bodies such as the World Intellectual Property Organization (WIPO) further complicate the ecosystem, as the national systems also co-exist with international frameworks.

Conducting a solid IP due diligence is a deceptively challenging task that requires an acute awareness of recent legal changes. This article seeks to highlight some lesser-known pitfalls that may come into play over the course of a transaction.

“Abandoned” United States patents and patent applications 

On December 18, 2013, the Patent Law Treaties Implementation Act came into effect and removed a 24 month time limit for reviving patents under the “unintentional standard”. As a result, patents once thought to be irrevocably abandoned for failure to pay a fee are now revivable with the submission of a simple petition indicating that the previous abandonment was “unintentional”. Similarly, a two year time limit for petitioning that a patent application was unintentionally abandoned was removed, and now patent applications may also be revived under this standard. This also applies to patent applications which were abandoned for failure to respond to an office action.

Given that the state of the art often takes unexpected turns, some abandoned patents previously thought to have no commercial value may actually include claims or claimable subject matter that read on now-foundational technologies. A target company may be unaware that it is actually in possession of an untapped patent goldmine.

Accordingly, a prudent transactional lawyer should request to review not only pending and granted patent rights, but make sure also any relevant abandoned patents and abandoned patent applications are included, in the event that they end up finding new life.

Non-published applications and provisional applications

While some IP rights are often listed on a number of easily searchable public databases, it should be kept in mind that not all applications are publicly available.

Regular patent applications generally enjoy a period of confidentiality that lasts up to 18 months from the date of filing; an entity may also have a number of provisional applications filed to establish earlier priority dates for their inventions, the provisional applications never being published unless relied upon to file a non-provisional application.

To further complicate matters, applicants in the United States can avoid publication entirely by certifying that they have not and do not intend to file a foreign patent application corresponding to the pending United States patent application.

Other types of applications for intellectual property rights may also enjoy a period of non-publication, such as design patent applications in the United States.

Accordingly, it is important to request a target party to disclose all non-published applications, including both pending patent applications and provisional applications, as these cannot be readily uncovered through even the most diligent of searches. 

Rights for not-yet-applied-for inventions

Not every invention conceived in the course of a target’s company’s business will have applications covering the invention, and it may be important to obtain rights over the future fruits of a company’s research and development efforts. 

This may involve ensuring the involvement of key individuals following a transaction to aid in examination, obtaining power of attorney agreements to execute various documents, etc. 

These rights are often considered under various intellectual property-related clauses in agreements with employees and contractors, and it is prudent to review these clauses to identify any risks related to the ownership of the applications once filed.

It is also important to note that as the United States has now adopted a “first-to-file” patent system, time may be of the essence in ensuring that applications are filed as soon as practicable.

Utility models

Utility models are a type of right that do not exist in Canada or the United States, but exist and are more popular in some jurisdictions, such as Germany, Finland, Austria, Korea, Taiwan, Japan, and China. 

Utility models are sometimes known as “petty patents”, and are a set of limited rights over an invention that an applicant can file an application for having generally a shorter period of protection than for regular patents.  The key benefit for applying for utility models is that the process is much faster, cheaper, and often does not involve substantive examination. 

While utility models may be unfamiliar to some practitioners, they simply cannot be underestimated. Recent Chinese decisions have awarded very significant damages for the infringement of utility models.  In some countries, practitioners concurrently apply for both a patent and a utility model, expeditiously obtaining rights over the invention through the granting of the utility model, and then converting the utility model rights upon the granting of the regular patent.

Patents issued with terminal disclaimers 

During examination of United States patent applications owned by the same entity, the USPTO allows applicants to file terminal disclaimers to avoid issues with double patenting. These terminal disclaimers disclaim a part of the term of the exclusive right conferred by one of the applications. 

From the perspective of a transaction, it is important to remember that, in general, terminal disclaimers require a statement that the patents in question will be “commonly owned”. The patents in question cannot be transferred separately, and the failure to concurrently acquire all of the patents covered under a terminal disclaimer will severely prejudice a party’s ability to enforce these patents.

IP assets held by related companies or holding companies

IP rights are often held at a separate entity different than the operating entity. There are various rationales for doing so, including tax structuring, bureaucratic / administrative efficiency, etc., and it is important to make sure that the entities having ownership of the intellectual property are properly considered as part of the transaction. Further, it is also prudent to check the chain of title reaching back to the original assignees to avoid any downstream surprises.

A good source of information regarding ownership can often be found in databases maintained by the patent offices, such as the TechSource database in Canada and the USPTO Assignments database in the United States. These searches may also turn up relevant information related to security interests attached to the intellectual property rights.

Other sources of IP

While a company’s most obvious and easily found intellectual property may indeed be their patents, registered copyrights and registered trademarks, there are also other sources that should not be forgotten. These include trade secrets covering a company’s confidential information, common law copyrights (e.g., source code, work products, documentation), common law trademarks, plant breeders rights, integrated circuit topology rights, industrial designs (design patents in the United States), among others.


Given that IP rights are creatures of the law, it is very important to stay abreast of recent developments, both substantive and procedural. Even seemingly minor procedural changes in the various systems may end up raising significant opportunities or risks; any established checklists or workflows used for IP due diligence should be carefully monitored and adapted to ensure that they are reflective of the latest jurisprudence and procedural practices.

M&A in the media and entertainment industry: going over the top

E&Y has reported that the media and entertainment (M&E) industry will experience a record high number of M&A deals in the coming year.The report surveyed executives associated with film, television, gaming, and print and digital media. Forty percent of respondents are anticipating acquisitions, with more deals in the pipeline thereafter.   

Inorganic growth can be a way for companies to explore opportunities related to intellectual property, technology, new geographical markets, and content. M&A is particularly attractive in the current Canadian market. We are seeing confidence in the stability of the economy; a sign that companies may be making more expansive growth decisions. There is a renewed interest in debt financing for major acquisitions thanks to a favorable interest rate term structure. And, companies are improving margins resulting in balance sheets as strong as pre-recession periods.

Topping-off subscription TV

Within the M&E industry, there has been a lot of interest in the video media sector. The consumption of television and movies is changing in exciting ways. Consumers are able to access robust content more liberally and for cheaper than ever before. Over the top (OTT) content delivery, in particular, is gaining traction as a method for consumers to access media. OTT refers to media which is delivered over the Internet without the involvement of a major cable or satellite television operator.With the success of on-demand streaming companies and the threat of illegal downloading, even major telecommunications companies and Canadian broadcasters are stepping into OTT arena. 

A recent PwC report notes that the goal for broadcasters and distributors will be to find the right mix of quality product, price, and easy access.  While traditional business models are still dominating the Canadian market, there is ample room for M&A to help shape an industry undergoing major digital transformation.  In the coming year, we will be seeing a handful of “landscape-changing deals” in the M&E industry.  Further, the majority of the M&A deals that are expected next year will be bite-sized, deals below $250M.  Predictions are that the predominant type of M&E transaction will be bolt-on acquisitions. These are acquisitions in which the business of the target companies will complement purchasers’ current core businesses. 

Though there appears to be much excitement around OTT, PwC cautions investors to curb their enthusiasm.  Subscription TV is still the dominant delivery method in the video media marketplace and PwC does not foresee a tipping point within the next 5 years.  Nevertheless, learning from the experience of the newspaper sector, the M&E sector is aware of the need to evolve rather than hold on to old models.  We may see preliminary changes in the next years that may herald a new era for media and entertainment.

The author would like to thank Denise Gan, articling student, for her assistance in preparing this legal update.

Hot market report: M&A potential for auto dealerships

In their Q3 2014 Capital Markets Flash, PriceWaterhouseCooper (PwC) reports that
“[t]here’s a lot of positivity within the Canadian auto dealership industry, which should come as no surprise given record sales that were almost unimaginable a few short years ago.” Since PwC’s Q3 update, the Canadian Automobile Dealers Association (CADA) published the industry’s October economic report, and the numbers keep looking better.

The Canadian light vehicle market has set seven consecutive monthly sales records with total sales 6% above 2013’s record setting numbers and truck sales increasing by 10%. Revenues at dealerships are also setting record highs, eclipsing $90 billion for the first time in 2013 and estimated at $95.5 billion for 2014. CADA reports that 2015 will most likely by the industry’s first $100 billion year. Our friends down south are having similar good fortune, with the National Automobile Dealers Association predicting that US sales of new cars and trucks will hit a 10 year high in 2015.

CADA reports that strong job creation, competitive industry fundamentals and strong access to financing are driving these record levels of demand, although the increasing use of long-term consumer financing deals has raised some sales sustainability questions.

What does this mean for potential M&A activity?

Basically, the iron is hot and it may be time for some industry players to strike.

In addition to significant increases in dealership valuations and increased dealership performance, PwC  reports that a large number of dealership owners are reaching retirement age and contemplating sales and succession strategies. Another driving force for M&A activity in the industry are increasingly complex and sophisticated OEM (original equipment manufacturer) guidelines and standards. Smaller dealerships may face challenges finding the capital to keep up with OEM demands.

While distinct, the issues of capitalization and succession will likely drive increased M&A activity as owners look to sell. And, with over 3,200 automotive dealers in Canada, there is little doubt that industry consolidation offers significant opportunities for investors.

Industry experts believe that there will likely be growth in public company ownership of automobile dealerships and the increasing prevalence of larger dealer groups who will use M&A to achieve back-office synergies, OEM diversification and geographic diversification.

More and bigger: Global and North American M&A market update

The 2014 trend of high value deals continues, according to a recently released Mergermarket Monthly M&A Insider report on global M&A activity. Through the month of October, the aggregate value of deals worldwide for the year has surpassed the last year’s total. Volume, on the other hand, still has some way to go before matching 2013 totals.

Geographically speaking, Europe saw the highest volume of transactions year-to-date, by a very small margin over North America (35.5% of global volume vs. 35.4%, respectively), but European deal values were comparatively lower, with European deals accounting for 22.6% of global deal value, while North American deals accounted for slightly more than half of the global aggregate. On the global scale broken down by industry sector, Energy, Mining & Utilities dominated the value breakdown, accounting for 18.9% of the total, followed by Pharma, Medical & Biotech and the Industrials & Chemicals sectors. Industrials & Chemicals is also the busiest sector year-to-date, having seen 18.9% of the total volume worldwide, followed by the Technology (12.2%), Consumer (12.1%) and Business Services (at 11.9%) sectors.

The picture did not differ greatly in North America. As noted by Mergermarket, both value and volume were up year-over-year for the month of October as compared to 2013 (US$ 88.3 billion compared to US$ 67.1 billion, and 362 total deals compared to 317 deals, respectively). Similarly, year-to-date value through October has also surpassed 2013 totals (and by a significant margin). The North American year-to-date volumes are coming up close to matching the annual total for the last year, but aren’t quite there yet. Notably, thus far higher-value deals have also accounted for slightly more of the year’s North American deal volume as compared to 2013.

Broken down by industry sector, the year-to-date experience in North America has been very similar to the global picture discussed above. Energy, Mining & Utilities is also the sector that saw the most value in the region (at 23.2% of total), followed by Pharma, Medical & Biotech (14.9%) and Consumer (11.3%) sectors. In fact, according to the Mergermarket data, of the top 10 announced North American deals for the month of October, five were in the Energy, Mining & Utilities sector (albeit two of the five were to an extent related). Industrials & Chemicals was the leading sector by volume, followed by Technology, and rounding out the volume lead were Energy, Mining & Utilities and Business Services.

In global private equity trends, both buyout and exit values year-to-date have exceeded 2013 totals. In North America, exit values were greater year-to-date than the total for 2013, but buyout values have not yet surpassed 2013 totals. Mergermarket noted that value of exits decreased year-over-year for the month of October by 30.8% compared to 2013. However, in terms of volume, we have seen a higher number of exits year-to-date in the region than in all of 2013.

Temperatures are rising: the mining industry is set to heat up with a growing potential for strategic deals

Grant Thornton LLP (Grant Thornton) recently released its 2014 Global Mining Report, Gathering Momentum: The Resurgence of M&A (the Report). The Report, which tracks the results of Grant Thornton’s Global Mining Survey (the Survey), is optimistic about M&A activity in the mining sector as the industry is set to heat up as 2014 ends and 2015 begins.

Why now?

Over one third of the mining executives surveyed in the Report said they expected to need a near-term cash injection in order to stay afloat. Grant Thornton reports, however, that funds are unlikely to come rushing in to struggling mining ventures as investors remain cautious and risk-averse while commodity prices continue to slide. Faced with limited access to capital, Grant Thornton predicts that such mining industry players will look to better capitalized mining companies and seek to sell (the whole or a part of) their company. To that end, the Report also states that over one third of the mining executives interviewed indicated they had an interest in acquiring a mining company (or a part thereof) in the near future. It would therefore appear that the mining industry is warming up to the idea of increased M&A activity: there is a growing pool of companies ready to sell and an equal number of companies looking for the perfect target to acquire.

How will M&A activity play out?

The Report has heralded this time to be “the onset of a buyers-market”. However, Grant Thornton are quick to caution that this may not lead to a surge of fast-paced, hostile M&A activity where buyers scramble to find the best deals. Instead, the Report says we should expect to see a slower, more calculated process of acquisitions. In the present marketplace, potential buyers are looking at their targets in great detail: buyers are looking at the target’s strategies, management, planning initiatives and cost control measures. When evaluating a potential target, buyers are looking for clear paths for cost reduction, ways to enhance revenue, investments in technology and effective management control. In short, buyers are going to examine much more than a target’s mineral deposits when it comes to selecting a target to take the plunge with. It follows that a much more rigorous due diligence review will take place, as buyers need to carefully study the potential target prior to committing to any kind of deal.

Considerations for buyers

As potential buyers in the mining industry begin the acquisition process, Grant Thornton outlined some key considerations:

  • Does the deal fit the current profile for the buyer’s commodity portfolio? Buyers should consider whether management already has technical experience relevant to the target’s main commodity, and whether additional knowledge and skills are required. Buyers should also consider where the commodity is located and whether management already has the expertise and in-country experience to operate in that region.
  • What is the rate of return? After examining existing feasibility studies, buyers need to know when and how much the acquired assets can be expected to produce.
  • What kind of infrastructure does the target have (or have access to)? Buyers should consider the costs associated with accessing the mine site and the costs are associated with transporting the minerals to a customer.
  • How does the target’s jurisdiction regulate mining activities? Buyers should consider the federal, regional and local laws as they relate to not only mineral extraction but also labour standards and sustainability (to name a few), and be aware of any proposals for new regulations.
  • Are there socio-political forces that could impact the target’s jurisdiction? Buyers should consider how the current social or potential climate could affect mine value (for example, in regard to resource nationalism, corruption or unrest).
  • How does the target’s current management team fit in with the acquisition plan? Buyers should consider how qualified or experienced management is at the target’s property/on the target’s board, and how they will fit into the buyer’s overall strategy.
  • Will the acquisition create value for shareholders? Buyers should consider opportunities to realize on potential synergies, such as by improving returns through the combination of adjacent properties or by sharing milling operations, which will ultimately create value for shareholders.
  • Who are the target’s key suppliers? Buyers should consider how efficient and cost-effective the target’s supply base is, and whether the acquisition presents opportunities for cost-saving synergies.
  • What is the target’s capital structure? Buyers should pay attention to how the target’s shareholder base is structured, and consider whether there are any blocking stakes that could present problems for a successful takeover.

The bottom line

As deal opportunities present themself to players in the mining industry, buyers need to take a disciplined approach to M&A. It will be crucial for buyers to carefully evaluate projects and focus their efforts on strategically appropriate transactions. In doing so, the mining industry should expect to see a greater number of successful deals take place as we move into 2015.

Supreme Court recognizes good-faith contractual performance as an organizing principle of common law

In last week’s article, Honesty is the best policy: new common law duty to act honestly in contractual performance, Todd Melchoir considered the Supreme Court of Canada’s recent decision in Bhasin v Hrynew. For further reading on this landmark decision, please check out Norton Rose Fulbright’s bulletin titled Supreme Court recognizes good-faith contractual performance as an organizing principle of common law.