Building the health systems of tomorrow: dealmaking and the future of the life sciences sector

EY has recently published a year-in-review report for deal making in the global life sciences industry.  The publication features some interesting statistics about deal activity in the past year, and makes predictions about which trends will carry forward into the 2019 and beyond.

The total value of life sciences deals in 2018 was US $198 billion, which was less than anticipated given that the companies in this space have “total firepower” (i.e., a measure of a company’s capacity to engage in M&A) of over US $1 trillion. According to the results of an executive survey, respondents suggested that high valuations and geopolitical uncertainties were leading reasons for not engaging in deals.  Nevertheless, the same executives believe that 2019 will see more life science deal activity than its predecessor, particularly in the small to medium deal range.  Product-focused innovation and portfolio optimization were cited as key deal drivers.

A major recurrent theme is the ongoing transformation of the industry. The interplay between health and technology has prompted companies in the life sciences to address the challenges to their business models. These challenges, in turn, drive deals as incumbents and newcomers alike jockey to improve their competitive position in the digital, data-driven future of healthcare. EY cites a number of 2018 deals as noteworthy for the purpose of exemplifying this changing landscape.  For example, in 2018, Amazon formed an alliance with Perrigo, an over-the-counter drug manufacturer, and acquired PillPack, a pharmacy:  moves that marked the e-commerce giant’s dramatic entry into the health care market.  Elsewhere, Google has allied itself with Flex, a provider of digital health care solutions, while Google’s parent company Alphabet made a significant investment in Oscar Health, an insurer.  Finally, EY notes that the Chinese technology conglomerate Alibaba has had remarkable successful developing its health care e-commerce business in China.  These technology companies have the deep pockets, a growing consumer base and technological and operational advantages to change the value chain for delivering health services.

To address this transformation, EY expects that incumbent life sciences companies will become increasingly focused on their strategies. Furthermore, these companies are expected to engage in deal-making to execute their strategies and ensure that they are positioned to control the health care ecosystems of the future.  In EY’s words “the imperative is mounting to use M&A to foster growth potential.”  Deal professionals everywhere are advised to pay attention to activity in this industry, as the size and importance of the markets involved will ensure that repercussions are felt far and wide.

The author would like to thank Eric Vice, articling student, for his contribution to this article.

Stay informed on M&A developments and subscribe to our blog today.

Cannabis and corporate governance: time for grow ops to grow up?

Since the legalization of recreational cannabis on October 17, 2018, the Canadian cannabis industry has experienced a significant boom. In its 2018 Cannabis Report, Deloitte predicted that legal sales of marijuana are expected to generate up to $4.34 billion in 2019. Moreover, and as previously discussed, Health Canada has introduced draft regulations governing the production and sale of edibles, extracts, and topicals, potentially providing additional growth opportunities for Cannabis companies to partner with the traditional food and beverage industry.

As the industry continues to grow, it is worth asking the question, how do these companies stack up from a governance perspective? One point of reference is the Globe and Mail’s “Board Games” rankings. These annual rankings rate the corporate boards of S&P/TSX composite index companies on a scale of 1-100, based on their corporate governance practices. The rankings are based on an analysis of four sub-categories, (namely: board composition, shareholding and compensation, shareholder rights, and disclosure). and the assessment criteria are generally more rigorous than the “mandatory minimum” standards imposed by regulators. In 2018, of the 242 companies examined, three cannabis companies were ranked 226 or lower.

The standings make sense given the youth of the legal cannabis industry in Canada, as the focus for these companies at this early stage will undoubtedly be on growth over governance. However, a short-sited approach to governance may lead to headaches down the road.

The following factors, identified by the Globe and Mail, will serve as a useful starting point for Cannabis companies seeking to develop their governance structures as they grow:

  • Board composition and diversity
    • increasing the number of independent directors on both the board and board committees; and
    • working to increase diversity in terms of board composition, coupled with the adoption of formal board and executive diversity policies.
  • Director and executive performance
    • conducting self-assessments and peer-review assessments in order to evaluate director performance;
    • providing director education programs to board members;
    • ensuring there is a CEO succession planning process in place;
    • separating the roles of chairman of the board and Chief Executive Officer;
    • establishing guidelines, policies and procedures for share ownership by the board and executives; and
    • providing robust disclosure on the directors of the company, providing tailed director biographies, accurately explained directors’ relationships to the company, and fully disclosed the value of all directors’ shareholdings.
  • Executive compensation
    • prohibiting executives from using financial instruments to hedge or offset their equity exposure; and
    • disclosing how the company ensures executive pay is linked to financial performance relative to the company’s peer group.
  • Shareholder rights
    • adopting shareholder rights processes, such as say-on-pay votes; and
    • adopting policies for clawing back bonuses when wrongdoing has occurred, or requiring CEOs to hold on to shares for a predetermined period after leaving.

Some of these factors will be easier to address than others. For example, simply enhancing disclosure on directors’ shareholdings and relationships can improve a company’s corporate governance standings with minimal additional effort or expenditure – therefore not distracting management or the board from their focus on growth. Similarly, conducting self and peer-review assessments for board members, separating the role of chairman from the role of CEO, and enhancing the disclosure around executive compensation are all relatively painless ways in which companies can demonstrate to their shareholders that they take governance issues seriously. Moreover, pro-actively addressing the more manageable deficiencies could buy cannabis companies time to address some of the larger action items, such as adopting shareholder rights processes, down the road.

By strengthening their corporate governance practices, organizations involved in the legal recreational marijuana industry can send a strong signal to their shareholders, to Canadian securities regulators and exchanges, as well as to the more sophisticated investors they will undoubtedly seek to attract, that cannabis is a strong and professional budding Canadian industry.

Stay informed on M&A developments and subscribe to our blog today.

Fintech is thriving! Global investment more than doubles in 2018

KPMG recently published its “Pulse of Fintech” report on global investment in fintech for H2 2018. Here’s what you need to know:

  • Global investment in fintech companies hit $111.8B in 2018 (with 2,196 deals), more than doubling global fintech investment in 2017. This was partly due to a small number of mega deals.
  • In the Americas, 2018 fintech investment hit $54.5B across 1,245 deals.
    • At $52.5B (up from $24B in 2017), investment in United States fintech companies made up the vast majority, mainly driven by a strong number of $100M plus mega deals.
    • Canada’s fintech market remained steady in 2018, but appears to be poised for growth in light of the changes to the Bank Act that are expected in 2019 and initiatives undertaken by the Canadian governments (including its payments modernization initiative and its consideration of a shift to open banking). Moreover, given Canada’s role as a global leader in artificial intelligence (AI) and machine learning, KPMG expects increasing investor interest related to AI-driven fintech offerings in Canada over time.
    • Investment in Latin America (particularly Brazil) continues to see strong growth, in part due to increasing global investment (including from investors in the US and Canada).
  • In Europe, investment in fintech companies reached $34.2B (536 deals), more than tripling 2017 investment, with the United Kingdom remaining the leader despite Brexit concerns.
  • Asia achieved a new high for fintech funding in 2018, with 372 deals raising a total of $22.7B. While China remained the leader, deals in countries such as India, Australia and the Philippines counted among the top 10.

KPMG’s predictions for 2019 include:

  • Increasing levels of consolidation, particularly in the payments and lending spaces, but also in emerging areas such as blockchain.
  • Bigger deals due to investors’ increasing focus on later-stage fintechs.
  • An increase in open banking, fueled by favourable regulations in Canada, Europe and elsewhere.
  • A dramatic increase in investment in blockchain companies dedicated to building specific products and services.
  • Investments in regtech will rise, as startups strive to help incumbent financial institutions reduce costs associated with complying with stringent regulations.

For more information on the latest developments, contact a member of our FinTech practice.

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

Stay informed on M&A developments and subscribe to our blog today.

Continued robust VC investment and PE mega-deals take the spotlight in a review of the 2018 VC & PE Canadian market

A recent report released by the Canadian Venture Capital Private Equity Association (CVCA) entitled “VC & PE Canadian Market Overview 2018” (the Report) reviews the current strength of Canadian venture capital (VC) investment and very recent mega-deal trend in Canadian private equity (PE).

Highlights of the Report

  • Total VC investment remains remarkably high: a total of CAD $3.7B in VC over 610 deals was invested in Canadian companies in 2018, representing only a 2% decline from 2017. Comparatively, an average of CAD $2.5B over 506 deals was invested each year between 2014 and 2016.
  • VC sector investments align with past trends: information communication technology (ICT) continued to attract significantly more VC funding compared to the life sciences and Cleantech sectors. In 2018, more than two-thirds (CAD $2.6B over 386 deals) of the total amount of VC invested in Canadian companies went to those in the ICT space.
  • VC investment in later-stage companies continues to increase: the percentage of VC dollars invested in later-stage companies increased by 8% from 2017 to 49% (CAD $1.8B).
  • PE investment remains variable: CAD $22.3B PE invested in 2018 represents a 15% decrease from the CAD $26.4B invested in 2017, but is 62% higher than the CAD $13.8B invested in 2016.
  • Mega-deals power Q4 and year-end totals: two mega-deals (CAD $1B+) in Q4 brought the 2018 year-end tally to four deals worth CAD $14.4B; 65% of total PE investment.

Overview of Canadian VC investment activity

In a previous post, we highlighted the increasing trends in Canadian VC investment in the first half (H1) of 2018, which saw 7% more VC funding in H1 2018 compared to H1 2017. Ultimately, VC funding in Q4 2018 saw CAD $1.3B invested over 165 deals, bringing the year end Canadian VC investment total to CAD $3.7B over 610 deals — a 2% decline from the previous year. This total represents an average deal size of CAD $6.1M, marking a 3% decrease from 2017, but a 16% increase compared to the average deal size in the five years between 2013-2017 (CAD $5.3M). Indeed, 7 out of every 10 deals were under CAD $5M. Fifteen mega-deals (CAD $50M+) accounted for 30% of the total VC dollars invested — down from the 39% share in 2017. The largest disclosed VC mega-deal was the CAD $161M raised by Assent Compliance through an equity infusion from Warburg Pincus.

Territorially, Ontario continues to be the hub of the VC landscape: Ontario-based companies received 51% of VC investment (CAD $1.9B over 252 deals), up significantly from 39% in 2017. Quebec-based companies followed with 29% (CAD $1.1B over 172 deals) and BC-based companies rounded out the top three with a 12% (CAD $441M over 84 deals) share. Toronto-based companies received 41% (CAD $1.5B over 197 deals) of the total VC investment in 2018. Once again, the ICT sector dominated the VC investment environment, grabbing over two-thirds of the total funding in 2018 (70%; CAD $2.6B over 386 deals). This was followed by the life sciences (17%; CAD $630M over 101 deals) and Cleantech (7%; $264M over 47 deals) sectors. Finally, while the number of M&A exits in 2018 paralleled 2017 (34 compared to 35 last year), the average exit value dropped by a third to CAD $24.4M.

Overview of Canadian PE investment activity

Canadian PE investment in Q4 tripled from the previous quarter to CAD $6B, resulting in a year-end total of CAD $22.3B over 543 deals. Two mega-deals (CAD $1B+) in Q4 lifted the 2018 total of such deals to four, amounting to 65% (CAD $14.4B) of all Canadian PE investment. Indeed, the aggregate value of all 2018 mega-deals was greater than the sum of all other PE deals, a phenomenon that had not occurred in the Canadian market since 2014. The largest disclosed mega-deal was the CAD $5.1B recapitalization of GFL Environmental Inc. by a syndicate that included Ontario Teachers’ Pension Plan. Smaller sized deals (less than CAD $25M) accounted for 68% of all PE deals, a noticeable increase from 2017 (60%).

Montreal-based companies were involved in a higher number of PE deals (98 deals representing 26% compared to 78 deals representing 20%), while Toronto-based companies received a significantly greater share of PE funding (CAD $11B compared to CAD $2.6B). Across the various sectors, PE investment displayed a more balanced distribution as compared to VC funding: slightly more than one-fifth of the PE deals in 2018 were in the industrial and manufacturing sector (22%; 118 deals), which was followed by the ICT (16%; 88 deals), consumer & retail (11%; 59 deals) and business products & services (10%; 7 deals) sectors. Most notably, PE exists slowed significantly this past year with only 82 exits (CAD $11.1B), including four IPO exits, compared to the 149 exits (CAD $11.6B) in 2017.

Looking ahead to the Canadian VC and PE landscape in 2019

Following the release of this report, Kim Furlong (CEO of the CVCA) provided her assessment of the VC climate in Canada: “2017 was just like a home run, so 2018 is a continuation of that growth trajectory.” This level of VC investment, particularly in new and later-stage companies, points to a robust Canadian start-up environment and shows the trust investors have in the system. In 2019, it will be interesting to see if Canadian VC investment can sustain the tremendous growth it has experienced over the past couple of years.

On the other hand, Canadian PE investment remains variable and has now failed to post back-to-back years of growth over the past five years. One item to follow will be whether the mega-deal trend — which Canada has not witnessed since 2014 — will continue or whether there will be a shift back to the more conservative sized deals seen over the past few years. As private investors continue to favour innovative ventures that are focused on R&D, only time will tell if Canadian PE investment can maintain a pattern of consistent growth.

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

Stay informed on M&A developments and subscribe to our blog today.

Outlook for 2019: cross-border M&A and post-merger integration

Despite a general environment of uncertainty, 2018 was quite active in the cross-border M&A arena. However, observers expect a global drop for this year, especially for the mega-deals (i.e. transactions with deal values exceeding $10 billion) amid uncertainty over Brexit and the threat of globe trade wars.

Accordingly, acquirers are increasingly focusing on domestic deals rather than cross-border opportunities, and as corporate leadership remains bullish towards cross-border M&A, industry experts have suggested placing a greater emphasis on managing post-transaction integration issues.

Why? Because poor post-merger integration can hamper value creation. A mismatch of cultural fit, particularly magnified in a cross-border deal, is often cited as the primary reason for failure to achieve synergy. The difficulties at the outset begin with an inaccurate understanding of the foreign target’s operations and any political and regulatory issues connected to the transaction. Companies that underestimate the time and expense that go into deal-making, due to a failure to account for challenges caused by language barriers, cultural and time zone differences, or delays in obtaining third-party and regulatory approvals, often find themselves setting unrealistic timelines for closing. Unfeasible expectations can dampen or even derail the transaction.

Secondly, acquirers should learn about and appreciate the differences between the way the merging companies operate. Understanding the nuances such as risk tolerance and decision-making processes of the staff and senior management can play a key role not only during the deal negotiation stage but specifically during post-merger integration. Acquirers would be remiss to leave developing an integration plan to post-closing stage. Challenges such as IT integration, IP assignments, cultural fit, cooperation and teamwork should be addressed from a holistic and strategic consideration well before closing.

Practically speaking, senior management ought to conduct cultural assessments to understand the different standards and expectations between the target and the acquirer with respect to people, practices and management. These are also opportunities for each organization to determine the benefits and drawbacks of their current structures and management styles, as well as opportunities and threats posed by merging cultures.

Lastly, probability of a successful integration for an acquirer can increase through the development of strong working relationships with target company employees at an early stage. The employees at the target company should be properly incentivised both financially and culturally so that they become invested in the merger, with a view to integrate into the larger post-merger company.

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

Stay informed on M&A developments and subscribe to our blog today.

Narwhals, unicorns and profits – Canadian tech start-ups are on the rise

Unicorns and narwhals – what business do these creatures have in boardrooms and on stock exchanges?

“Unicorn” and “narwhal” are industry terms used to describe certain private start-up tech companies. “Unicorns” are start-ups valued by investors at $1B or more, a rare and substantial feat that has earned them their mythical nickname. “Narwhals” sit a stage below, vying for graduation to unicorn status.

The Canadian Unicorn Pipeline

The Toronto-based Impact Centre recently posted its 2019 Narwhal List (the List), which identifies nascent Canadian companies that may evolve into unicorns, as well as the financial avenues that can facilitate such transformations. Some of the report’s notable 2018 statistics include the following:

  • The number of firms projected to become unicorns has nearly doubled.
  • The List’s 25 technology companies raised an average of $40M in new capital, and its 2 healthcare companies averaged $100M.
  • The technology sector’s average financial velocity (the amount of capital a company has raised divided by the number of years it has been in existence, expressed in millions of U.S. dollars per year) dramatically increased from 9.4 to 12.8, raising the overall financial velocity of Canadian narwhals to 14.6 (from 9.4). By contrast, the financial velocity of healthcare tech has continued to steadily decline.
  • None of the List’s firms were sold or made IPOs in 2018.
  • The average narwhal in 2018 was 8 years old and had raised $105M since its inception (a marked increase from 2017’s $66M).

The 10 leading Canadian narwhals from last year all hailed from a variety of sectors, including biotechnology, artificial intelligence, drug delivery and development, and consumer products, and were all founded between 2008-2016. The average Canadian narwhal operates in the internet software and services industry and is headquartered in Toronto.

Impact Centre’s report also notes that Canada has yet to produce a unicorn since 2015, whereas the U.S. founded and graduated 19 companies in that same time. U.S. firms also boast a markedly higher average financial velocity. Unfortunately, Canada is also not keeping pace with comparable jurisdictions on a global scale – its peers are producing at least 2 new unicorns each year.

The United States: Unicorn Country

Crunchbase News also recently explored the unicorn market, focusing primarily on U.S.-based companies and producing more illuminating data:

  • New unicorns, compared to their predecessors, are more likely to acquire other small start-ups early in their lifecycle.
  • Most U.S. unicorn M&A is domestic (78%), meaning that firms are acquiring companies headquartered in the same country. Most other countries’ unicorns were similarly localized in their dealings (e.g. only 33% of Canada’s unicorns’ M&A deals were cross-border).
  • Major acquisitions were made by ride-hailing, travel and accommodations booking, and music streaming companies, which turned their gazes internationally so as to break into and dominate less-saturated markets.

In summary, Canada is poised to produce more tech unicorns should its market stakeholders strategically nurture and invest in its domestic narwhals. As we have recently reported, global surges in tech-related M&A activity, from media to MedTech, evidence a worldwide market that is ripe for growth and investment opportunities. For Canada to be a hub of innovation in this developmental wave, its investors must continue to fund start-ups in the domestic unicorn pipeline.

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

Stay informed on M&A developments and subscribe to our blog today.

3D printing – the manufacturing industry’s “comeback kid”

Speed. Scale. Diversity.

What do these words have in common? According to Deloitte, they are the three main reasons that 3D printing, also known as additive manufacturing (AM), is experiencing a sustained resurgence in 2019.

Deloitte recently published the 18th edition of its Technology, Media & Telecommunications Predictions report, which forecasts both global and regional trends in its titular sectors for 2019. In the past, Deloitte reports explored 3D printing, expressing cautious optimism in the face of the market’s supposed overenthusiasm for the new technology and its seemingly endless possibilities. Though the 3D printing market never collapsed, it did slow to a crawl after its initial boom in 2014. Currently, it appears that reality has largely caught up to the hype from years prior, resulting in notable projections for the AM market for 2019.

In several different industries, 3D printers are now able to manufacture a variety of materials faster and larger than ever before. Beyond plastic prototypes, companies can now create metal and even mixed-material parts. Deloitte predicts that metal will surpass plastics to dominate more than half of all 3D printing as early as 2020. Notably, in September 2018, Hewlett-Packard announced the launch of HP Metal Jet, supposedly the world’s most advanced metals 3D printing technology for low-cost, high-quality mass production.

Deloitte predicts that global sales of enterprise 3D printers, materials, and services by large public companies will exceed $2.7 billion in 2019 and $3 billion in 2020. The yearly growth rate is expected to be close to 12.5%, nearly double that of years prior. To put that value into perspective, the manufacturing sector’s annual global revenue is reported at roughly US$12 trillion.

Despite the growth and new developments in the industry, 3D printing remains markedly more expensive and time-consuming than traditional manufacturing methods. Though more production costs means higher value outputs, in a market where the same product could be generated faster and sold for less money, the 3D printer can seem obsolete and cumbersome. Despite the higher production costs, situations do arise where 3D printing is preferred. For example, there are personalized objects that can only be made using 3D printing methods, such as customized surgical stents and other personal health models. Situations can also arise where scarcity of resources or the size of the product necessitates experimenting with alternative production methods offered by 3D printers. There is also growing interest in 3D printing technology becoming more accessible to the common consumer, with printers being introduced into schools and households alike.

One need only take a look at some of the recent, notable investments and partnerships in the sector to understand the varied potential of 3D printing. In August 2018, a certified defense vendor in the United States, announced that it had sold two of its 3D printers to certain branches of the U.S. Armed Forces to help with supply chain efficiency and product innovation. In November of last year, a 3D printing company announced their partnership with a non-profit organization working to save the lives of children born with heart defects, to provide surgeons with anatomical heart models for training and research purposes. AM’s projected 2019 sales and mounting innovation presents attractive opportunities for potential investment or strategic partnerships with manufacturing industry players looking to expand their product offering.

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

Stay informed on M&A developments and subscribe to our blog today.

Private equity and the “buy-and-build” boom

Private equity funds are increasingly turning to a “buy-and-build” (B&B) approach to boost revenues, realize value and increase returns. The B&B approach, also referred to as an “add-on” strategy, involves the purchase of a platform company, followed by the purchase of multiple related and complimentary targets through share or asset acquisitions. B&B strategies offer an alternative to otherwise potentially slow and cumbersome organic growth by setting the table for private equity funds to capture synergies through vertical integration, combined operational strength and leveraging a whole that is worth significantly more than the sum of its parts.

B&B: the rise

Bain & Company recently released its annual Global Private Equity Report for 2019 (the Report). The Report discusses, among other things, the benefits and challenges of a B&B strategy. The Report defines a B&B strategy as “an explicit strategy for building value by using a well-positioned platform company to make at least four sequential add-on acquisitions of smaller companies.”

Despite difficulties in tracking performance and trends of B&B strategies in the market, it appears as though this strategy has been gathering steam in recent years. The Report observes that in 2003, only 21% of all add-on deals represented at least the fourth acquisition by a single platform company. In recent years, that number has reached approximately 30%. In 10% of all cases, the add-on transaction was at least the tenth sequential add-on acquisition. Further reports suggest that add-on acquisition activity has increased significantly since the early 2000s, accounting for nearly 50% of all buyouts in the first half of 2018.

B&B: the benefits

The B&B approach has proven successful for several reasons. Smaller companies often trade at lower multiples, making them attractive targets and affordable investment options with room for outsized gains and opportunities to capture value. Combining multiple smaller companies with a platform company can lead to reduced overhead costs and streamlined operational expenses. Synergies in human resources, technology, and back-office processes can be enhanced and supply chain performance improved.

All of the foregoing can lead to expanded market reach, and boosted returns for investors. However, in order to maximize the benefits of a B&B strategy, time is of the essence. When looking to acquire an add-on company, a private equity fund should typically have a pre-determined plan in place that provides for transition from the evaluation phase to execution. In addition, a well-crafted playbook that accounts for legal, operational and financial expertise is critical.

B&B: the burden

Beyond the fundamental aspects of a typical acquisition, special attention should be paid to cultural integration in the context of B&B acquisitions. Careful evaluation of the various costs associated with integrating employment practices, policies and procedures should also be undertaken. Finally, a unique feature of the B&B strategy is its impact on customers. When acquiring multiple smaller businesses, the platform company should properly consider customer demand, ensuring that target companies can offer compatible products or services that do not undermine the performance or reputation of its constituent parts.


Reliance on B&B strategies by private equity funds is approaching hitherto unseen levels. As private equity funds increasingly look for efficiencies and productivity when deploying capital, adhering to a B&B approach may present a lucrative alternative, and perhaps even superior method of delivering value. While this strategy is not without its challenges, diligent preparation and meticulous execution can yield impressive results.

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

Stay informed on M&A developments and subscribe to our blog today.

FTC announces increased HSR thresholds for 2019

On February 15, 2019 the Federal Trade Commission (“FTC”) announced the annual increased reporting thresholds under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) of 1976, as amended.

Under the HSR Act, if certain thresholds are hit, parties proposing a merger or acquisition must file a detailed report with the U.S. FTC and Department of Justice, who will then be tasked with determining whether or not the proposed transaction will negatively impact U.S. commerce under anti-competition laws.

Below are the new thresholds and updated HSR filing fees and penalties.

Threshold 2019 Adjusted Threshold
Minimum Size-of-Transaction US$90 million
Size-of-Persons Test US$18 million and US$180 million
Size-of-Transaction above which Size-of-Persons Test Does Not Apply US$359.9 million


2019 Size-of-Transaction Threshold Filing Fee
Greater than $90 million but less than $180 million US$45,000
$180 million or greater but less than $899.8 million US$125,000
$899.8 million or greater US$280,000
25 percent of an issuer’s voting securities if valued in excess of $1,799.5 million US$280,000
50 percent of an issuer’s voting securities if valued at greater than $90 million US$45,000

The FTC separately announced an increase to the maximum penalty for violations of the HSR Act of US$42,530 per day.

These new thresholds are effective on April 3, 2019 and will remain in effect until the next annual adjustment, expected in the first quarter of 2020.

Please check out our legal bulletin for more details.

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

Stay informed on M&A developments and subscribe to our blog today.

A pragmatic approach to climate risk

Climate change is a reality we cannot ignore. Media report season after season record-breaking heat, drought, bushfires, etc. The impact on businesses is real, and investors are increasingly pushing for more detailed disclosure on climate change-related issues.

According to the Wall Street Journal, companies are expected to face 75 climate-related shareholder proposals this AGM season. Generally, the questions investors are asking can be divided into two categories:

  1. What corporate social responsibility initiatives are you adopting to mitigate your company’s contribution to climate change?
  2. Is your company particularly exposed to any risks that climate change is expected to exacerbate?

Corporate social responsibility initiatives

The first question should not be taking issuers off-guard, as the call to action is obvious and potential mitigative strategies are known, or at least knowable. This risk is principally addressed by engaging with your shareholders which is generally good governance and not necessarily specific to climate risk. Last year, there were reports of significant groups of shareholders pushing their respective companies to release detailed plans on efforts to cut down on waste from single-use packaging and plastics. Although a corporation may well determine that adopting this proposal is not, on balance, in the interests of the corporation, it would be an unambiguous case of mismanagement if the company failed to address the issue altogether.

The best approach to addressing these types of climate related initiatives is to engage with your shareholders. You should know how sensitive your shareholders are to these types of initiatives and have a good understanding of your shareholders’ expectations. Larger firms should keep in mind that both ISS and Glass Lewis are generally in favour of proposals that enhance disclosure of climate related initiatives. If your shareholders rely on these firms for advice, you may want to make sure your investors are satisfied with your disclosure.

Climate change as a risk to the business

Climate change as a business risk doesn’t have the same headline-grabbing potential as CSR initiatives, but knowing how the changing world is affecting your business is certainly no less important. While some securities regulators are considering adding specific climate-related disclosure requirements, these risks should already be on the radar. By proposing climate-specific disclosure rules, regulators are suggesting that managers are not adequately recognizing potential threats to the business. If that suggestion is true, the implication could be that market values do not accurately reflect the ‘true value’ of a business.  Fundamentally understanding what makes the business valuable is management’s core job. Clearly, understanding specific impacts that climate change can have on the business is much more difficult than responding to a shareholder proposal, but whether a business is public or private, managers who understand risks facing a business are in a better position to deliver value for shareholders.

Increasingly, the impact of climate change is being measured on the financial markets. Investors who trade in weather-linked derivatives are trading broadly in line with climate predictions. As Bloomberg notes, this means that investors are taking climate predictions at face value, or they are independently coming to the same conclusions as climate scientists. All of that is to say, it appears as though the smart money is looking for managers who have a cogent and comprehensive approach to evaluating the impact of climate change on their business. Only time will tell what the right answers are, but managers who are proactively asking the right questions about climate risk will be more likely to come to the right conclusions.

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

Stay informed on M&A developments and subscribe to our blog today.