The interesting thing about M&A is…

Many predicted that 2017 would be another record year for Canadian mergers and acquisitions (M&A). There are also currently some predictions that interest rates will continue to rise despite the recent announcement of a contraction in the economy. In this blog post we consider these two factors.

As depicted in Figure 1 below, while 2017 has seen a greater number of deals as compared to 2016, the value of these deals has generally been lower. Given the expectation of rising interest rates, this is consistent with our analysis that rising rates has little effect on the number of deals but a negative effect on deal value.

As previously reported, the Bank of Canada increased the overnight lending rate from 0.75 per cent to 1.0 per cent on September 6, 2017 but, as reported here, refrained from increasing the rate any further on October 25, 2017. Observers predicted that increasing interest rates were unlikely to affect M&A activity. However, statistical analyses are not entirely corroborative.

To explore the relationship between interest rates and M&A activity, we conducted a regression analysis of the Overnight Money Market Financing Rate (OMMFR) in relation to the value of M&A transactions and the number of M&A transactions from the first quarter of 2012 to the third quarter of 2017. The following explores this analysis and presents some of the main results.

Some key definitions

Before delving into the analysis, it is worthwhile to differentiate between two related yet oft-confused terms: (1) target for the Overnight Rate and (2) Overnight Rate. As the name suggests, the target for the Overnight Rate is the target level set by the Bank of Canada. Acting as a reference point for banks and other financial institutions, this rate thereby impacts other interest rates. For example, interest rates for consumer loans and mortgages. In turn, the Overnight Rate is “the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves”. In our analysis below, we employed the OMMFR, which is “an estimate of the collateralized overnight rate compiled at the end of the day by the Bank of Canada through a survey of major participants in the overnight market”.

Regression analysis summary


Drawing on data from Capital IQ, we conducted a regression analysis of OMMFR as compared to the value and number of transactions announced within each quarter of 2012 and up to the third quarter of 2017. We limited our review to transactions where at least one party – that is, buyer, seller or target – was based in Canada. We also used the Bank of Canada OMMFRs for each quarter (January to March, April to June, July to September and October to December) over the same five year period. Because OMMFRs change daily, in order to obtain the OMMFR for each quarter, we averaged the daily rates for the three months comprising each quarter. Moreover, because we were exploring how transaction value and number change in response to interest rates, we assigned the OMMFRs as the independent variables and transaction value and number of transactions as the dependent variables. We then ran separate regression analyses for each of the latter dependent variables.

Results & analysis

Value of Transactions (Figure 2). Our results showed a negative relationship between interest rates and transaction values with transaction values tending to decrease as interest rates increased. In particular,  the inverse correlation between interest rates and transaction value was approximately 0.616 and, for every 10bps increase in interest rates, overall transaction value decreased by approximately $96 mm. Moreover, as indicated by the R-Square value, interest rates accounted for approximately 38 per cent of the variance in transaction value.

Number of Transactions (Figure 3). In contrast to the above, the relationship between interest rates and the number of M&A transactions was not nearly as significantly related. In particular, the R-Square value for this set of data was 0.013. This suggests that interest rates did not have a significant effect on the number of transactions during the period we studied. Similarly, the correlation was rather weak and negative (-0.115). This is not a particularly surprising result given that for many companies, M&A is a strategic business decision where the perceived benefits presumably outweigh the costs of higher interest rates. Furthermore, for companies that finance M&A deals with equity rather than debt, rising interest rates are also likely not particularly prominent considerations. In fact, if interest rates continue to rise in the future, there may be a corresponding rise in equity-financed M&A transactions.


With the Bank of Canada’s recent announcement to maintain the target Overnight Rate at 1.0 per cent, as well as the upcoming interest rate-related announcement due December 6, 2017, we are seeing clients taking a cautious approach when considering transactions

[1] It is important to keep in mind the limitations of such statistical analyses. First, the data covered both reported public and private transactions, but not all transactions are fully reported, if at all. Similarly, many other factors can affect deal value and number and a regression analysis of a single factor cannot account for these variables. Finally, our analysis went back just five years when the OMMFR was approximately 1.0 per cent , which  is equal to the current target Overnight Rate. As such, if we expanded our review, our results may change.

The author would like to thank Samantha Sarkozi, Articling Student, for her assistance in preparing this legal update.

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A look at the venture capital landscape in Canada

PwC has recently released the 2017 MoneyTree Canada report  for Q3 2017 (the Report), which provides insight into the landscape for equity financings in emerging venture capital (VC) backed companies headquartered in Canada.  While it may come as no surprise that financing activity has increased in Q3 2017, the magnitude of the increase, especially for Artificial Intelligence (AI) based companies, stands out as the focal point of the Report.

Key findings

  • Financing activity continues to increase: Annual investment is on track for another USD $2B year invested across more than 300 deals – record numbers compared to 2012 to 2015.
  • Drop-off in seed stage deals / Increase in early and expansion stage deals: Seed stage deals reached an eight-quarter low for total deal share while early stage and expansion stage deals reached eight-quarter highs for total deal share in Q3 2017.
  • AI record breaking funding: Total funding and deal volume for Canadian AI companies have already reached annual record highs.

A closer look at investment activity

In Q3 2017, approximately USD $858M had been invested across 81 deals, representing an increase of approximately 110% and 21%, respectively, relative to Q2 2017 and 129% and 13%, respectively, relative to Q3 2016.

At the end of Q3 2017, approximately USD $1.8B had been invested across 228 deals and the Report rightfully emphasizes a strong close to the year is par for the course: indeed, if 2016 is a reliable indicator for quarterly and annual expectations, we can expect financing activity in Q4 2017 to reach record highs as total funding and deal volume hit an eight quarter high in Q4 2016.

Ontario remains the hot spot for deal activity in Canada with total funding and deal volume greater than the combined total for British Columbia, the Prairies, Quebec and Atlantic Canada. Within Ontario, the Toronto market accounted for nearly half of deal volume (46%) and total funding (44%) this quarter, followed by Montreal (22% and 23%, respectively), Vancouver (16% and 10%, respectively), Ottawa (9% and 5%, respectively) and the Waterloo region (7% and 18%, respectively).

Deal share by stage

In Q3 2017, seed stage deals accounted for only 32% of total deal share in 2017 – down 19% and 12% from Q2 2017 and Q3 2016, respectively.  Early stage and expansion stage deals, however, each experienced increased activity relative to Q2 2017 and Q3 2016 to account for a combined 48% of total deal share.  Indeed, expansion stage deals in particular appear to be on the rise: accounting for 21% of total deal share in Q3 2017 represents a climb to an eight-quarter high after averaging just 12.9% of total deal share over the previous 7 quarters.

Deal share by sectors

The sector that accounted for the highest activity, both in total funding and deal volume, was the internet sector.  In addition, and perhaps more importantly, it appears as though investors have their sights set on AI based companies as both total funding and deal volume involving such companies have hit record highs for the year: AI based companies have received USD $191M in financing across 22 deals. As discussed in a previous blog post, this is a strong indication that we are indeed in the midst of the AI gold rush.

The author would like to thank Peter Valente, Articling Student, for his assistance in preparing this legal update.

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The truth behind M&A advisory fees

Fees can be a touchy topic. This is perhaps why there is a paucity of publicly available data on mergers and acquisitions (M&A) fees. However, with the recent publication of the M&A Fee Guide 2017,  we now know more about fees relating to M&A than before. The guide consolidates survey responses from over 470 advisors and investment bankers from around the world. Listed below are some of the survey’s key findings and the corresponding implications.

The smaller the company, the larger the fee

One key finding of the survey was that companies with smaller purchase prices had larger advisory fees. The Deal Room offered a strategy to combat these larger advisory fees. They recommended that businesses should speak with many advisors before settling on one, in order to determine what different firms are charging. The survey also revealed that the spectrum of success fees was quite large when the price of a company was below $5 million.

Time-based retainer fees

There are a number of ways in which an advisor can structure his or her fees. For instance, an advisor may choose to use a retainer or engagement fee. These fees are either paid as a flat fee or are spread out over monthly payments. The survey showed that time-based retainer fees were predominantly used compared to their counterpart, fixed fees. It was noted that the preference of time-based retainer fees could be due to the flexibility of avoiding a significant upfront cost, by spreading it out over time.

Success fees

Success fees, as its name indicates, are fees paid in correlation with the successful closing of a deal. These fees are normally derived from a percentage of the worth of the company that is being sold. It is relatively common for parties using success fees to calculate the percentages in a way that incentivizes both the seller and advisor to maximize the deal value for the company. The survey found that 45% of respondents admitted to using success fees in this manner.

Another interesting finding from the survey was the extent to which success fees fluctuated depending on the region and city. The results showed that the majority of US Pacific advisors disclosed using success fees ranging from 2-4% for a $50 million deal. However, the majority of the US Northeast region charged success fees of 1-2% for the same deal amount.

Choosing an M&A advisor

Although fees may be an extremely important factor to business owners in determining which M&A advisor to go with, looking for the cheapest quote may not always be the best policy. It has been recommended that other criteria should be taken into account and that business owners should ensure to ask a plethora of questions beforehand. Irrespective of fees, pertinent considerations include the firm’s history of M&A deals, whether they are knowledgeable about the industry you operate in, its efficiency and track record of closing deals and reviews from former clients.

Factoring in the abovementioned considerations, in addition to cost, was recommended based on the notion that some advisors who charge higher fees may be able to sell your business for a much higher sale price than other advisors. While there may still be a lot to learn about how M&A fees are structured, these survey results may be a catalyst for more publicly available information in the future.

The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.

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Shareholders’ agreements: right of first refusal versus right of first offer

It is common for shareholders of a closely held corporation to set out the rules that govern their relationship vis-à-vis one another in the form of a shareholder agreement. One key concern for shareholders when negotiating a shareholder agreement is controlling the transfer of shares to unknown or undesirable persons, while still maintaining liquidity in their shares. A common mechanism used to address this concern is a right of first refusal (ROFR).

Right of first refusal

A ROFR provides non-selling shareholders with the right to accept or refuse an offer by a selling shareholder after the selling shareholder has solicited an offer for their shares from a third-party buyer. The non-selling shareholders receive the selling shareholder’s offer on the same terms as presented by the third-party buyer. This right allows non-selling shareholders to control the process of adding a new shareholder, while preserving liquidity for the selling shareholder.

Right of first offer

A less known but similarly useful mechanism in the context of a shareholder agreement is a right of first offer (ROFO). A ROFO provides non-selling shareholders with the right to be offered the shares before any external solicitation takes place. If the offer is refused by the non-selling shareholders, only then may the selling shareholder solicit third-party offers on the same terms that were presented to the non-selling shareholders. Thus, a ROFO achieves the same aim as a ROFR: it allows non-selling shareholders to control the process of adding a new shareholder, while preserving liquidity. So the question then begs, how would one decide between using a ROFR and a ROFO?

ROFR versus ROFO

The answer often comes down to the degree of knowledge shareholders have in respect of the value of their investment. In the case of a ROFR, because the solicitation process occurs prior to any offer being made to non-selling shareholders, a selling shareholder is able to have more certainty that it is receiving the best value that exists on the market for its shares. Thus, where a selling shareholder lacks insight into the corporation’s value (possibly because it is a minority shareholder and/or lacks information rights), it may be advantageous to negotiate a ROFR to ensure it gets the best value for its investment upon exit.

On the other hand, where a selling shareholder has insight into the corporation’s value, it should be better positioned to value its investment. Therefore the solicitation process would not be useful to said selling shareholder in determining value. Instead, a selling shareholder may wish to effect a sale as quickly and with as little transaction costs as possible. A ROFO offers this possibility. A ROFO permits a selling shareholder to immediately make an offer to the non-selling shareholders instead of spending the time soliciting a third-party offer first. Moreover, where a third-party buyer is aware that the shares are subject to a ROFR, the third party buyer might ask to be reimbursed for the due diligence and related expenses if the transaction fails to close. Closing uncertainty in the case of a ROFR may also cause the third party to offer a lower price in the first place.

All this to say, whether a ROFR or ROFO is preferred will depend on the circumstances at hand and shareholders would be wise to carefully consider the pros and cons of each option before deciding.

The author would like to thank Shreya Tekriwal, Articling Student, for her assistance in preparing this legal update.  

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How can the crowd fund you?

Crowdfunding is a great way for businesses to raise a small amount of money from a large group of people to help fund a new business venture. However, businesses who use crowdfunding to raise capital by issuing securities in exchange for the money raised need to make sure they are not violating any securities laws by using a registration and prospectus exemption available in their jurisdiction. There are currently two exemptions from prospectus and registration requirements under securities laws in Canada for crowdfunding, start-up crowdfunding and equity crowdfunding.

Start-up crowdfunding

The first exemption is for start-up crowdfunding, available for start-ups and early stage issuers looking to raise capital. This exemption is currently available in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia. Start-up crowdfunding allows companies to raise small amounts of capital by selling securities without filing a prospectus. A funding portal is allowed to help companies facilitate trades of the securities distributed under the start-up prospectus exemption without having to register as a dealer, except in Alberta where such exemption for funding portals in not available.

British Columbia Securities Commission published a helpful guide that explains how start-up crowdfunding works and the steps involved. A small business posts on a crowdfunding website their investment opportunity, outlining the basic information about their business, how much they are looking to raise, the risk involved in their business venture and how the money they raise will be used. Investors can invest up to $1,500 and investors residing in BC and Alberta can invest up to $5,000 if the issuer has a head office in BC or Alberta, the crowdfunding distribution is made through a registered dealer and the dealer has determined that the investment is suitable for that particular investor. The crowdfunding website will hold the money raised in trust for investors until the minimum amount is raised. If the business fails to raise the minimum amount, the crowdfunding website will refund the money back to the investors. The maximum amount that can be raised is $250,000 per start-up crowdfunding distribution. In Alberta, once a business has raised $1,000,000 under this exemption over the course of its existence, it can no longer used this exemption.

Equity crowdfunding

As discussed in our previous post, equity crowdfunding exemptions that exist in Ontario, Quebec, Manitoba, New Brunswick and Nova Scotia allow companies to raise up to $1.5 million annually and distribute securities through a registered funding portal without filing a prospectus. Investors have to reside in one of the participating jurisdictions and can invest up to $2,500 per year in a single distribution and up to $10,000 per year in total. Businesses relying on this exemption still have certain obligations to their investors, including making their annual financial statements available to investors and giving notice of key events, such as change in control of the business.

By using one of the exemptions discussed above, businesses can raise money through crowdfunding in participating jurisdictions without running afoul of securities laws.

The author would like to thank Olga Lenova, Articling Student, for her assistance in preparing this legal update.

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Using M&A playbooks to avoid post-closing issues

Companies spend more than $2 trillion on acquisitions every year, yet many acquisitions ultimately fall short of expectations. There are several reasons why a transaction may not turn out as planned, but oftentimes the culprit is poor post-closing integration. While most transactions are given a great deal of attention until the day of closing, the same degree of attention doesn’t always continue past the closing date to include a post-closing action plan.

How can an M&A playbook help?

M&A playbooks can dramatically help companies reach their transactional goals, especially corporations that routinely engage in M&A transactions. An M&A playbook is effectively a set of best practices developed by a company to guide their internal teams through and after closing a complex transaction. It can assist groups involved in the due diligence process to identify issues that matter most to the company; it can set out lessons learned by a company from previous transactions; and it can help coordinate company efforts in identifying potential post-closing issues.

What is included in an M&A playbook?

M&A playbooks may include a set of tools, templates and processes covering a variety of areas including:

  • Organization structure: determining how to migrate different management structures into a single management team.
  • Human resources: determining the impact of a transaction on employee selection and retention.
  • Business processes: determining the critical process of the company and the target company.
  • Data management: determining how to manage the redundancies created by merging of two systems and how integrate the data and data systems.

From a legal perspective, the company’s M&A playbook could outline topics such as the following:

  • Role of legal counsel: determining how and where to engage legal counsel. If there is an in-house legal department, determining the division of responsibilities between in-house counsel and outside counsel.
  • Policies: determining which key governance and operating policies require integration.
  • Contract management: determining how to manage contractual obligations and leverage favourable terms.
  • Legal entity structure and legal compliance: determining how to change the legal structure of the newly merged or acquired company.
  • List of disclosure documents: determining the list of legal memos or reports to be delivered to the board and the due diligence to be conducted.

M&A playbooks assist in managing expectations of various stakeholders and establishing a cross-functional leadership team focused on post-closing integration. While terms of a playbook should be modified to suit the needs of each transaction, arriving at a consensus around general issues could lead to higher success rates in M&A transactions.

A note of caution

While a M&A playbook may provide a helpful roadmap to assist stakeholders in navigating a transaction in light of a company’s strategic and financial goals, a playbook is not a panacea. All transactions have certain nuances which cannot be planned for or dealt with in advance, so while a playbook may set out helpful transactional guidelines, there is no cookie-cutter approach to M&A.

The author would like to thank Shreya Tekriwal, Articling Student, for her assistance in preparing this legal update.

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Rising retail bankruptcies present ample opportunity for distressed investors

The recent giant retail bankruptcy filings by Toys ‘R’ Us and Sears Canada are not standalone cases in the retail sector. According to the recent Quarterly Report Of Business Bankruptcy Filings, in 2016, the United States experienced a year-on-year increase of 26% in the number of retail company bankruptcy filings. The sector generated 15.77% of all bankruptcies in 2017 year-to-date south of the border while the Sears Canada liquidation is making headlines in Canada.

The reasons for the bust of the traditional retail industry are plentiful. For one, the pressure from online retail platforms like Amazon, which is growing at more than 20% per year, is immense, but a sudden switch from the brick-and-mortar store model is not easy. Companies often underestimate the time and R&D expense necessary for the launch of a competitive online retail platform. While in-store sales are dropping, retail chains have a hard time responding quickly, given the often large capital investments in long-term leases and real estate. As retail is typically a low-margin business, companies can find themselves in the position of not being able to pay the bills, and are forced to file for bankruptcy protection.

The Amazon success story is not the only reason for the vast number of retail reorganizations in the past year. Driven by its growing affluence and increasing population, Canada is attracting copious numbers of luxury brands such as Sandro and Maje, Warby Parker, and others which are rendering the top quartile of the market ultra-competitive and further squeezing margins. At the same time, the ‘extreme-value’ sector is growing, spearheaded by Dollarama and Dollar Tree, which are adding locations and higher value products. In addition, traditional mid-tier retailers, such as Winners, Marshalls and HomeSense are entering the value sector. This deadly combination of rapid expansion of luxury retailers into Canada on one end, and the bolstering of the value sector on the other can make it difficult for companies that are stuck in the middle to give people reason for visiting their stores. In particular, retailers that lack an identifiable customer base, have poor customer service and/or lack of investment in consumer experience or carry an excessive product overlap with either larger or lower cost competitors are struggling.

Some other retailers such as Payless Inc., Gymboree Corp., and Toys ‘R’ Us are left overleveraged from prior private equity buyouts, either from before the 2008 financial crisis or during the recently ended period of cheap money. The struggle to pay down debt over many years and the inability to refinance due to the changing interest rate landscape and sluggish performance, leaves little money for investments to adopt to the changing marketplace.

Whether an LBO gone wrong or the inability to successfully enter the online retail space, as well as pressure due to increased competition or lack of adaptation to the changing demands of shoppers, many retailers have found themselves in Chapter 11 in the United States or a CCAA restructuring in Canada. Despite an often dire situation, many retailers have a very strong asset base and a working business that may merely need a balance sheet restructuring or help rescaling its physical store presence. Despite more retail stores opening than closing so far in 2017, we expect the retail sector adaptation to be ongoing and present ample opportunities for distressed debt funds and strategic buyers to get involved in future Canadian retail reorganizations.

The author would like to thank Shreya Tekriwal, Articling Student, for her assistance in preparing this legal update.

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Registering and discharging intellectual property security interests

Intellectual property often forms an important part of a target’s assets, especially for start-ups and high-tech companies. It is important for both the purchaser and the vendor to understand the security registration and discharge process in intellectual property assets.


Pursuant to the provincial Personal Property Security Acts, Intellectual property is considered a type of intangible personal property, and as previously noted in order to perfect a security interest in such intangible property, a secured party must register its security interest at the appropriate personal property security registry in the jurisdiction where the debtor is located .

In addition, a creditor may “record” such security interest under the Trade-marks Act (Canada), the Patent Act (Canada) and the Copyright Act (Canada) with the Canadian Intellectual Property Office (“CIPO”) by filing a copy of the security agreement and paying the prescribed fee, if applicable. Once recorded, CIPO will place a note on its national register such as “Security Agreement Placed on File” to notify the public of the existence of such security interest attached to specific intellectual property. Secured parties usually file a separate short-form intellectual property security agreement or a redacted general security agreement to record their security interest with CIPO as such security agreement, once recorded, may be available to the public.

It should be noted that the legal interplay between federal and provincial laws of recording such security interests is uncertain in Canada. It is best practice to record such security interest in both the federal and provincial registries to obtain the maximum protection.


A prospective purchaser should conduct due diligence searches on both CIPO and the applicable personal property security registries to determine if any security interest has been registered in favour of a third party creditor that need to be discharged or otherwise addressed prior to closing.

To discharge a provincially perfected security interest in intellectual property, a financing change statement must be filed with the appropriate personal property security registry and paying applicable fees. To discharge a “recording” with CIPO, a pay-off letter or release letter should be filed and applicable fees should be paid. Similar to security agreements, usually a separate release letter is filed with CIPO to avoid confidential or sensitive information being filed with a public registry.

In addition to discharging security interests, the purchaser should also register a transfer and assignment agreement with CIPO and pay the prescribed fee to reflect any change in ownership of certain types of  intellectual property (i.e., patents and trademarks) upon the completion of the asset sale.

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M&A trends in the restaurant industry

We previously reported on the increased amount of deal activity in the food and beverage sector, including the growing attention towards specific niche areas within this industry, such as natural and organic food and “indulgence” foods. Based on the number of mergers and acquisitions (M&A) deals seen in 2016 and in 2017 so far, it has been predicted that 2017 would be a successful year for the food and beverage industry.

Restaurant M&A deals in 2016

Within the food and beverage industry, there has been particular growth in the restaurant sector specifically. This growth is evidenced by the increase in number of restaurant-related deals in the United States by 86% from 2004 to 2016. Specifically, 2016 was a notable year for M&A deals in the restaurant industry. The number of deals grew by 23% in 2016, compared to the two previous years, which experienced negative growth.

For instance, CenterOak Partners, which is a private equity firm, bought a large portion of the Wetzel’s Pretzels chain in September 2016 for an unreported amount. Another M&A deal in 2016 was the acquisition of a majority stake in the Jimmy John’s sandwich chain by Roark Capital Group. The sandwich chain was an addition to the Group’s portfolio that consisted of Arby’s and CKE Restaurants Holdings Inc. (who is the parent of Carl’s Jr. and Hardee’s).

One of the largest acquisitions of the year occurred in May 2016, when Krispy Kreme Doughnuts was taken private for $1.35 billion. The privately held German investment company who acquired Krispy Kreme Doughnuts, JAB Holding Company, is 95% owned by the Reimann family. However, JAB Holding Company did not stop there at restaurant-related acquisitions and continued in this direction in 2017.

Restaurant M&A deals in 2017

It was predicted that restaurant deals in 2017 would increase both in terms of the number and value of deals. So far, the M&A deals relating to the restaurant industry have proven this prediction correct.

In 2017, JAB Holding Company acquired yet another restaurant-related chain. This time, they acquired the soup-and-sandwich restaurant chain, Panera Bread, for $7.5 billion. In fact, JAB Holding Company boasts a broad portfolio of food-related companies, such as Peet’s Coffee & Tea, Caribou Coffee and Einstein Noah Restaurant Group. Another notable deal in 2017 was the acquisition of Round Table Pizza by Global Franchise Group, another privately held investment group. Similar to JAB Holding Company, these acquirers are not strangers to the food industry as they are the parent company of Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Maggie Moo’s Ice Cream.

Given the recent popularity of acquiring food-related companies, it seems that M&A deals in the restaurant industry will likely continue to be a steady trend for the rest of the year.

The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.

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Adding value through tech deals

A new report by BCG asks the question of whether wading into tech deals can add value to companies. Based on BCG’s analysis of 37,000 tech acquisitions, the returns from such deals are mixed: about half generate positive returns for acquirers. This is the case regardless of whether the buyer itself is in the tech industry or outside of it. These findings are not out of line with findings in respect of acquisitions in other sectors.

There are, however, ways in which an acquirer of a tech company can try to tilt the odds in its favour.

BCG’s data shows that fortune often favours the bold when it comes to tech acquisitions. Deals in which the acquirer took control of a target – as opposed to ones in which it only acquired a minority stake – created, on average, higher cumulative abnormal returns (CARs). This is likely due to concerns among investors that minority owners, who are often concerned with moving cautiously into new areas, lack the positioning to exploit a target’s technology and fully capitalize on what it has to offer for the acquirer.

Interestingly, new entrants in the tech acquisition market tend to generate stronger short term returns than more experienced acquirers. On average, first time acquirers experienced a 1.04% CAR gain on announcement of the acquisition (this represents an average net gain of $60 million upon announcement of an average $200 million deal). Such first-time acquisitions often signal a recognition on the part of the acquirer of the need for a corporate transformation, as represented by acquiring more innovative products or services; the market then rewards the acquirer accordingly.

More experienced acquirers experience lesser short-term returns (ranging from an average of 0.37% and 0.90% CAR), as investors consider tech acquisitions for such firms to be a more ordinary part of the company’s existing business strategy.

However, over the long-term is where the advantages of being a more consistent tech acquirer shine through. One year after announcement of an acquisition, more experienced tech buyers (or “serial” tech buyers, as BCG puts it), in both the tech and non-tech sectors, markedly outperform the market, by some 4.4 percentage points in the relevant index. This is not the case for less experienced or first-time acquirers, who generally do not outperform the market.