Maintaining perfection post-closing

In a secured financing transaction, such as acquisition financing, a creditor would often protect its interest by creating, attaching and perfecting a security interest by registration in the personal property of the debtor or the guarantor. Once a deal closes, secured creditors would often forget to monitor their registrations to maintain perfection. Post-closing events such as (i) change to debtor name, (ii) transfer or sale of the collateral, or (iii) expiration of registration period are among the common events that may unperfect secured creditor’s security interest if left unattended in Ontario.

Change to debtor’s name

As per Section 48(3) of the Personal Property Securities Act (Ontario), a perfected security interest by registration will become unperfected 30 days after the secured party learns of the name change. In this case, a secured creditor should either register a financing change statement or take possession of the collateral within such 30-day period to maintain perfection. Time will start to run upon the secured creditor first acquires knowledge of such name change, whether by a written notice or deemed knowledge (i.e., debtor changing its letterhead and is observable by the secured creditor).

Transfer or sale of the collateral

Usually, the credit agreement will permit the sale of inventory in the normal course of business, and the buyer will be able to purchase the collateral free and clear of the security interest.

Where the transfer of collateral is not inventory in the ordinary course of business, and the secured creditors provided consent to such transfer with the intention that the buyer will take title subject to the secured creditor’s security interest, then the secured creditor must file a financing change statement within 15 days of such transfer to maintain perfection in the collateral.

If the debtor transferred the collateral without the secured creditor’s consent, then the secured creditor has 30 days to register a financing change statement or take possession of the collateral from the later date of:

  • the transfer, if the secured creditor had prior knowledge of the transfer and if it had the information required to register a financing change statement at the time of the transfer; or
  • the day the secured creditor first learns the information required to register a financing change statement.

Expiration of registration period

Lastly, secured creditors should note that security interest perfected by registration are effective only for the registration period stated in the filed financing statement. Upon expiration of the registration period, unless renewed by filing a financing change statement, security interest will become unperfected. Therefore, secured creditors should have a system in place to remind them to renew the registration prior to the lapse of registration period.

What happens when you fail to meet the deadlines?

If the secured creditor failed to file a financing change statement or take possession of the collateral to maintain perfection or to renew the registration, then it may reperfect its security interest by filing a new financing statement and its security interest will be deemed to have been continuously perfected from the filing of the original financing statement. The only exception is that the reperfected security interest will not be enforceable vis-à-vis any new secured creditor who perfected its security interest during the lapse period.

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Signs of optimism for mining, oil-and-gas M&A activity in 2018

Overall merger and acquisition deal value involving Canadian companies totalled $216.3 billion in 2017, which was approximately 14% lower than the $251.88 billion seen in 2016, which was a decade-high level. The fall in overall value was primarily caused by a 25% decline in energy deals, according to a report in Bloomberg, which resulted in the first year-over-year decline in total deal value since 2012-2013. Despite this decline, 2017 stands as one only five years since 1995 when deal value exceeded $200 billion, according to a report in the Wall Street Journal.

Outward bound M&A activity was down slightly in 2017, from a record of $176 billion to approximately $122.3 billion, which still remained well above the $72 billion average from the previous five years. Domestic M&A reached its highest level in more than a decade with Canadian firms buying $69.9 billion worth of local companies and assets. The domestic M&A market was mostly driven by the Canadian energy firms purchasing assets as foreign players exited the market – specifically driven by divestitures and restructurings in the oil and gas sector.

While the steady economy, availability of financing, and low interest rates should contribute to a strong environment for M&A activity in 2018, the outcome of any renegotiation of the North American Free Trade Agreement (NAFTA), or even potential U.S. withdrawal from the trade pact, combined with new lower U.S. corporate taxes are expected to impact deal numbers and have left analysts uncertain in their outlook for the coming year. As evidenced by foreign players’ exit from the market in 2017, there is a declining foreign interest in Canadian resources. This decline is caused by the perception in the market that Canada presents environmental regulatory concerns around buying oil-sands assets, has higher-cost bases to produce, and does not have adequate transportation options available for export.

That being said, the continuation of recent rises in in oil and metal prices may increase interest in Canadian targets. According to the Wall Street Journal report, mining and oil-and-gas companies may also continue to be attractive targets for Asian and European companies despite the concerns associated with NAFTA, and that U.S.-based private equity firms may see buying opportunities in Canada. In 2018, deals are expected to consist of consolidations among Canadian mid-sized oil and gas companies or purchase by mid-sized mining companies of smaller precious and base metal companies.

Despite the slight downward trend from 2016 to 2017, Canadian M&A activity in 2018 is expected to be at or above 2017 levels, supported by an optimistic outlook that activity in the mining sector will return to its historical standards.

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

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Don’t be fooled! How traditional M&A differs from digital M&A

Over the past few years, we have seen a rising trend in digital technologies driving tech M&A deals for both tech and non-tech companies.

Technology brings its own set of challenges to the M&A space. The following are some of the many differences between traditional and digital M&A:

  • Wider target list: The list of targets in a digital M&A tends to be longer than in a traditional, non-digital deal. Therefore, a need for new screening methods arises if digital targets are involved.
  • Financing and valuation methods: Digital assets are often considered to be too expensive. Valuing digital assets begins with determining how the acquisition will impact the growth-value profile of the company’s stock and equity profile. As target digital assets tend to be expensive, the avenues for financing an acquisition through the use of shares is limited. That being said, acquisition based on a 100% cash deal may also expose a company to overvalued goodwill and future write-offs.
  • Due diligence process: Due diligence for digital targets is substantively different than traditional targets. For instance, acquirers are required to screen a target before its value has actually been monetized and thus, are faced with a lack of financial information.
  • Integration of digital assets: There are two common ways of integrating digital assets into a traditional company: (1) integrating all aspects of the acquired company and incorporating it into the existing system; or (2) keeping the acquired assets separate from the traditional company to avoid overpowering its spirit. That being said, both approaches have been faced with successes and failures.

The following are recommendations made by Bain & Company in its article titled “The Changing Rules for Digital M&A” for achieving success in digital M&A:

  • Develop a digital strategy as part of an overall corporate strategy.
  • Consider all financing options, including adapted payment terms such as earn-outs or other deferred payment mechanisms.
  • Consider the scalability of target digital assets in terms of human resources, technology and business models.
  • Nurture and mobilize specific digital experts during the due diligence process.
  • Enhance cultural integration practices to preserve and develop a digital target’s entrepreneurial culture.
  • Understand where and how digital approaches could transform current operations and business model.
  • Consider non-conventional ways to retain talent.
  • Equip investor relationship management with right communication tactics on how the company is embracing digital world.

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

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What’s trending: M&A in the luxury fashion retail industry

The luxury fashion retail industry is no stranger to change, but recent notable mergers & acquisitions (M&A) have further shaped the industry’s landscape as certain luxury brands are looking to expand. A number of factors have encouraged luxury fashion houses to merge. As we mentioned in an earlier article, e-commerce has greatly affected the bottom lines of brick-and-mortar stores. As more consumers are shopping online, the sales of brick-and-mortar retailers have diminished. In fact, there has been a noticeable decrease in the number of consumers who shop at North American malls and department stores. Another factor that has prompted a shift towards M&A is the change in consumer preferences. Before, shoppers gravitated more towards luxury brands that fell in the middle in terms of price and style, which are also referred to as “middle market luxury brands”. Now, consumers have veered towards the opposite ends of the spectrum and seem to be split into two camps, one that is loyal to high-end luxury brands or another that prefers more affordable fashion retailers.

Although wealthier consumers are still purchasing high-end luxury items, competition from online platforms is encouraging some luxury retailers to turn to M&A as a solution. Certain high-end luxury brands have been using M&A to combat changing environmental factors in the industry for years, by merging into “luxury brand super groups” or a “family of brands”. It is predicted that this trend is here to stay. For instance, one of the largest luxury brand conglomerates in the world, LVMH,  is comprised of 70 brands that are in over six various industries, ranging from fashion and leather goods to wines and spirits. Despite the fact that consolidation in the luxury retail sector will likely increase, some heritage brands, such as Chanel and Hermès, are resisting the trend of M&A. One reason why heritage luxury brands would resist attempts to be taken over is that these brands have historically been associated with their founding fashion designers. From a marketing point of view, consumers associate the heritage brand with these iconic figures, which is a selling point that many consumers use to justify paying high prices for these products. If these fashion houses were to merge, the branding of these companies would be diluted and consumers’ perceptions of these brands could diminish. While some heritage brands have been successful in rebuffing the trend of M&A that has been seen in the industry to date, this trend will likely remain in style for a while.

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

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Cannabis: a budding Canadian industry

Last week, we covered EY’s recently released report (the Report) surveying the bourgeoning cannabis sector in Canada.

The impending legalization of cannabis has weighty implications for the Canadian economy, but may also impact the global markets more broadly. Capital markets, the jobs market, mergers and acquisitions activity and intellectual property, among others, stand to be significantly affected.

This is an unprecedented opportunity for the country to be the global leader in the cannabis space, to shape the regulatory framework for cannabis around the world and to spur innovation and economic productivity – The Report


Following the most recent federal election, a task force was created to report on the legalization and regulation of cannabis. This task force delivered its report in November 2016. Shortly thereafter, on April 13, 2017, the federal government released the proposed Cannabis Act (Bill C-45) to legalize the production, distribution and sale of cannabis for recreational purposes, which largely implemented the recommendations of task force in its 2016 report. The target launch for Bill C-45, subject to parliamentary approval is slated for July 1, 2018. Oversight of the industry will be jointly administered by the federal and provincial governments. The federal government will oversee production, packaging and labelling, and licensing matters relating to cannabis while the provincial government will have domain over distribution and retail sales.


The Report identifies and discusses two major barriers for the upstart cannabis sector:

  • Unclear regulatory environment: The legislative framework remains unclear and the timelines for implementation and enforcement of Bill C-45 are uncertain. The Globe and Mail recently published an article discussing potential roadblocks to the proposed launch date of July 1, 2018, specifically noting that Bill C-45 may require more time for deliberation in the Senate, which could effectively push existing timelines back.
  • Capacity crunch: A protracted licencing approval process has led to concerns over whether there will be sufficient licenced producers, with adequate capacity, to meet demand once legalization is formalized. Production capacity will need to catch up in order to ensure that the predicted supply shortage is addressed.


The Report fleshes out five key themes that represent potential opportunities for companies in the cannabis space:

  • Strategy and operations: Similar to other industries, cannabis companies will need to foster and sustain competitive advantage, tap into economies of scale where possible, differentiate offerings, maintain stable supply chain management and effectively capitalize on domestic and international opportunities. Branding and marketing initiatives will also require particular attention and will need to be tempered by stringent regulatory constraints mandated by the legislation.
  • Technology and innovation: Given its broad application in the modern economy, technology and innovation-related opportunities can be amorphous, however, three areas primed for significant attention by cannabis companies include: 1. Improvements in cultivation and processing, 2. Improvements in extraction to increase quality and reduce waste, and 3. Improvements in the variety of delivery methods and speed of activation and metabolism of cannabinoids in the human body.
  • Investment strategies: Allocation of capital to build or improve facilities and maximize operations represents one of the keys to success for companies in the cannabis sector. Attracting and retaining top talent will also shape the ability of companies to maintain growth, remain competitive and take full advantage of potential prospects.
  • Consolidation and competition: A high barrier to entry in the cannabis space is the up-front investment required to be competitive. This front-loaded investment, coupled with the slow licence awarding process to cultivate and distribute cannabis, may inevitably lead to consolidation. This may lead to a relatively small but concentrated group of big players that pioneer the future of the industry.
  • Customers and stakeholders: While there are normative and customary barriers to the nascent cannabis industry, opportunities abound to de-stigmatize the consumption of cannabis and shape market sentiment to drive market opportunities.


Legalization of cannabis appears to be around the corner. While many question marks relating to specifics of the industry remain, Canada is primed to play a major role in legally bringing cannabis to market, all the while engineering a new industry that was unthinkable in the not-so-distant past. The final picture that the legislation takes is still up in the air, and stakeholders will need await further certainty to react optimally, but legalization appears to be here to stay and the implications for the Canadian (and perhaps global) economy are anything but burning out.

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

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M&A outlook 2018: find out more

Over the last 18 months there has been substantial global, geopolitical uncertainty, including the run-up to, and the eventual election of President Trump in the US presidential elections, the fall-out from the UK’s “Brexit” referendum, the elections across Europe and the North Korean crisis in Asia. These events have had global implications but somewhat surprisingly global M&A has, on the whole, withstood these turbulent times.

Norton Rose Fulbright’s corporate practice has published an article on global M&A trends and forecasts. Please check it out!

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Data privacy in M&A: looking forward into 2018

With an ever-growing public awareness of the implications of data privacy (or rather, lack of data privacy), increased emphasis on best data practices is likely to influence mergers and acquisitions (M&A) in 2018 and beyond. Different jurisdictions have opted for varying kinds of regulations, each of which may affect transactions in unique ways. In particular, the European Union (EU) is preparing to implement new, strengthened data privacy regulations in 2018.

Looking ahead, the EU is now poised to implement the General Data Protection Regulation (GDPR). Implementation is expected to occur on May 25, 2018. The GDPR purports to regulate the personal data of EU citizens. In the M&A sphere, data privacy due diligence will become even more critical, as acquirers must evaluate how the target company collects, stores, uses, and transfers personal data.

What can acquirers look for to evaluate the target company’s data practices?

During its due diligence, an acquirer should consider whether there is or has been:

  • Complete disclosure and understanding of the movement of the target’s data between different locations, including different jurisdictions which may have different laws;
  • Privacy by design, meaning an approach to design that considers and integrates privacy at all stages of the design process;
  • Maintenance of a comprehensive and up-to-date data security strategy to responsibly manage and protect the personal data collected by the target; and
  • Risk assessments by the target regarding the risks posed by collection, storage, use, and transfer of personal data.

With five months remaining to prepare for the GDPR, now is a critical time for companies anticipating M&A activity involving the EU to brush up on their new legal obligations, and for all potential acquirers or targets to carefully consider their data privacy practices and ensure compliance with applicable data privacy regulations.

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

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Keeping real estate on trend with RealTech

The impact of technology can be felt across virtually all sectors of the economy and real estate is no exception. In fact, technology affects all aspects of real estate from its procurement and development to its management and use. Real estate-specific technology is often aptly referred to as “RealTech”.

Explaining RealTech

The KPMG White Paper, “The Future of RealTech – Real Estate Technology: Threat or Opportunity?” defines RealTech as “technologies that impact the built environment and the real estate sector, either through business model innovation or product innovation, affecting the way we live, work and play”. The UK company, Popertee, is instructive. This company uses artificial intelligence to strategically match retailers with optimal locations for pop-up shops based on their respective customer bases. Some other prominent examples of RealTech include virtual reality and simulation technologies to assist in selling real estate, software for managing transactions from beginning to end, programs that screen tenants and peer-to-peer leasing, just to name a few. The scope of RealTech is evidently broad.

Investing in RealTech

As of late, investments in RealTech have been on the rise. From 2012 to 2016, venture capital funding of RealTech companies increased a resounding 1200 percent, as investments rose from $221 million USD to $2.6 billion USD over that four-year period.

MetaProp NYC, a real estate technology investment and advisory firm, conducts a survey called the Global PropTech Confidence Index. This survey solicits experts’ projections for the future of the real estate technology market globally. According to the survey, as reported in an article from The Wall Street Journal, investors and start-ups in RealTech expect an increase in merger and acquisition (M&A) activity in the coming year as the market continues to develop. More specifically, 76% of investors surveyed indicated that they expected to see more M&A activity in the coming year (as compared to the previous year where only 58% of investors predicted increased M&A activity in RealTech). Similarly, a sizable proportion of the surveyed start-up founders and executives predicted a strong likelihood that, within the next two years, their businesses would be purchased, make an initial public offering or undergo some other type of major transaction. It therefore appears that investments and corporate changes in RealTech are beginning to occur at more rapid rates and with an increasingly international direction, both of which are indicative of a strengthening and growing RealTech market.

Overall, it is apparent that the real estate sector is not immune from technological change. In fact, real estate technology is on the rise and, given impressive venture capital funding, presumably viewed as a worthwhile investment. As such, real estate companies of all sizes and structures may have to embrace and adopt these technologies in order to remain competitive or else risk being rendered irrelevant.

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

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Why some tech M&As fail to deliver value

In a recent blog post, we explored the reasons why a sizable number of M&A deals fail to complete every year. As discussed in that post, the closing of an M&A deal does not necessarily announce the success of a transaction. In fact, as high as 60% of M&A deals fail to deliver value even after a victorious closing, as an A.T. Kearney study shows. The Harvard Business Review reports that the failure rate of an M&A deal falls in the range of 70 – 90%.

Extensive research has been conducted to locate the elements that are fatal to M&A deals post-closing. With the surging interest in tech M&As, people have started to look at the reasons why the high death rate has also translated to the tech industry. While numerous factors can be named, the consensus among commentators directs our attention to mistakes in post-M&A integration of culture and business.

Cultural clashes

Company culture is the soft metric that defines the relationship between employees and drives them to achieve business goals together. This is of critical importance when it comes to tech M&A, where, most of the time, the ability to innovate, as embedded in the target’s culture, is one of its most valuable assets. Thus, maintaining the innovative spark of the target while integrating it into the acquiror firm presents an extra layer of complexity in a tech M&A deal.

A common mistake observed by Chris Barbin, CEO of Appirio, is that companies usually spent most of their resources mapping out cultural alignment in the due diligence stage and the early stage of the deal, but quickly lose sight of this issue as they became distracted by day-to-day operations. Even if the management did not allow the culture integration to fall by the wayside, too often, they focused on the wrong things, such as whether employees can wear jeans on Friday, rather than the underlying management practices and working norms, as reported by McKinsey & Company.

Botched business integration

After an M&A, product ownership can be easily transferred, but the unity of people and process requires a great deal of execution, the lack of which Barbin identifies as the biggest cause of most failures. The extent of execution covers implementing integration of every aspect of the business, from financial systems and HR to product portfolios and sales compensation, which is a different job from running the business.

Besides the amount of work, business integration is challenging as it also requires the unifying of the business models and strategies of the two companies. In a tech M&A deal, a typical question the acquiror management may face is how to bring comfort to a target employee who now has to adjust his or her mindset from being a star in a growing successful start-up to becoming just one of the many employees in a big corporation?

At the leadership level, Barbin suggested that management from both sides should stay focused on the reason that brought the two companies together in the first place and to ensure the delivery of that promise. At the same time, James Fillingham, head of transaction service at PwC, pointed out that it is crucial to retain talented employees at all levels and what makes them special, as it allows the merged company to preserve the ability to innovate and really derive value from the acquisition.

As a recent BCG report suggests, buying high-tech targets has become an instrument of choice for companies across industries to boost innovation and access the technologies which can advance their businesses.  To capture and realize the value of tech M&As, it is important for companies and investors to look through the potential of the deal presented on paper and think about the challenges post-M&A to ensure the initial good intention and planning are carried through.

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Consolidation within the cannabis industry

As the government prepares for legalization of recreational marijuana this summer, Canada’s cannabis producers and distributors are bracing themselves for a period of consolidation leading up to and following legalization. A recent report published by Ernst&Young (EY) provides insight into the current state of Canada’s cannabis industry. EY surveyed 11 licensed producers and found that many of those surveyed believe that consolidation in the cannabis industry is inevitable due to the high barriers for new players. Two of the biggest hurdles cannabis producers and distributors face is difficulty obtaining financing from banks and the slow speed at which the government gives out new licenses. There are currently 79 licensed producers in Canada which offer opportunity for those wishing to enter the market to do so via an acquisition of an already licensed producer. As demand will increase post legalization, these relatively small producers may encounter difficulty keeping up with the increase in demand, which may lead to a larger producer buying their small competitors in an effort to maximize production efficiency and meet increased consumer demand.

The slow speed at which the Canadian government has issued licenses to grow and distribute cannabis will also likely increase consolidation trends in the industry. As established companies in similar industries, such as tobacco and pharmaceuticals, seek to enter the cannabis industry post legalization, they will likely look to enter the market quickly. Acquiring small producers that are already licensed and have established production operations will be an attractive option that would allow established companies to enter the cannabis industry quickly. In fact, there have been a number of mergers and hostile takeovers within the cannabis industry in the last few months. EY is predicting that consolidation and inorganic growth will continue within the industry for the foreseeable future, leaving two or three dominant players in the industry emerging with a handful of craft producers.

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

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