How to ensure that emails of former employees do not fall through the cracks when purchasing a business

The importance of email in the workplace presents a variety of legal challenges when purchasing a business. Among those are concerns relating to emails and the email addresses of the seller’s employees who are no longer employed by the purchaser after closing.

First, there are confidentiality concerns in connection with former employees receiving information they should no longer have access to. Second, there are concerns that customers or other relevant individuals may be emailing former employees instead of the current employees of the purchaser. This can result in missed sales opportunities, gaps in customer service and a negative impact on the purchaser’s bottom line.

That being said, by carefully drafting a purchase agreement to include one or more of the following provisions, a purchaser can help protect itself against these pitfalls.

Post-closing covenants are obligations of the buyer or seller to do something after the transaction takes place. One way of avoiding the concerns mentioned above is to include a post-closing covenant which requires the seller to promptly forward all emails received at the former employees’ email addresses to the email addresses of the new employees of the purchaser. This ensures that the purchaser’s employees will receive all emails addressed to the former employees and assist with business continuity and integration.

A purchaser should also consider including a post-closing covenant requiring the seller to set-up automatic replies from the email addresses of the seller’s former employees directing senders to contact the appropriate person in the purchaser’s organization. In addition, it may be wise to include a provision where the seller agrees to give the purchaser access to all archived emails of the seller’s employees.

Another way of avoiding these concerns is to ensure that the purchase agreement includes a clause where all rights, title and interest in the emails or other electronic communication used by the seller and the seller’s employees are assigned to the purchaser on closing.

Given the number of aspects involved when purchasing a business, the facilitation of access to the seller’s email addresses and email correspondence is something that can easily be overlooked. By turning their minds to this issue early in the acquisition process and including the necessary clauses in the transaction documents, purchasers can help avoid falling prey to these pitfalls. Addressing these types of issues early on is also increasingly important in an environment that has seen a greater focus on rigorous information management by target companies.

The author would like to thank Josh Hoffman, articling student, for his assistance in preparing this blog post.

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Let’s see the money! Debt finance options in M&A

In many cases purchasers in an M&A deal will obtain debt financing to cover a portion of the purchase price. Fortunately, in Canada the options for acquisition financing are plentiful. Common ‘types’ include:

Senior Debt: the Bank Loan

Banks and other senior lenders can design a range of tailored solutions to purchasers’ funding needs. Broadly speaking, these loans can be classified as follows:

  • Fixed Term Loan or Revolver: The fixed term loan is credit for a fixed amount to be funded, and paid back, according to a pre-determined schedule. A revolving loan allows a borrower to drawdown, pay back and re-borrow a capped amount of credit at its own discretion. Loan agreements can feature some combination of the two depending on the purchaser’s up-front financing needs and future working capital requirements.
  • Single Lender or Syndicated: Syndicated loans refer to credit granted by a syndicate, or group, of lenders. This form allows lenders to participate in larger financings without requiring high capital outlay or risk exposure. A syndicated loan is often led by one lender acting as agent, a role which typically includes negotiating and administering the loan. Syndicated loans can add complexity to a deal due to issues, including ranking, that must be negotiated between lenders.
  • Unsecured vs. Secured: These categories are distinguished based on whether security is taken over the assets of the purchaser (or target) to secure payment of the loan. In large acquisition financings the lender(s) will always demand security, which can be taken over virtually any tangible or intangible assets. It is common for lenders to also require that the purchaser or its affiliates provide guarantees, which can be secured or unsecured.

Asset-based Loans (ABL)

ABL is a niche form of lending that will be attractive to borrowers in certain circumstances. The amount of credit available under the loan is tied to the value of specific assets of the borrower. Typically, ABL lenders prefer liquid assets such as accounts receivable and inventory, and will advance funds based on a percentage of the assets’ value. ABL can be attractive where the borrower is rapidly growing or highly leveraged, and needs fast, flexible funding. Borrowers should know that proof of steady, high-quality receivables and strong financial reporting capabilities are pre-requisites to obtaining ABL financing.

Leveraged Buy-Out (LBO)

An LBO is an acquisition finance structure in which debt is used as the main source of funding for the purchase price. This structure allows a purchaser to make large acquisitions while contributing relatively little of its own capital. Security is taken in the assets of the purchaser and the assets of the target being acquired. Lenders, cognizant of the risks associated with high leverage, will often insist upon strict operating and notice covenants. For this reason, purchasers typically only engage in LBOs of mature companies with stable, predictable cash flows. While high-profile LBO failures have illustrated the risk inherent in this approach, if used successfully purchasers can realize a higher return on equity than they would if ‘ordinary’ levels of debt were used.

Owner (or Vendor take-back) Financing

In this acquisition finance structure, a portion of the purchase price is paid on closing and the seller agrees to defer and finance the balance of the purchase price. Post-closing, the purchaser owns the business while making principal and interest payments to the former owner. The appeal of this structure is context-dependant. Sellers are most likely to offer financing at a lower cost to sweeten (and expedite) the deal. Both parties will appreciate the reduced cost that comes with avoiding third party financing, but sellers should have a clear understanding of the credit-worthiness of the purchaser and the risks of lending.

Mezzanine Financing

Mezzanine financing is a hybrid form of debt that gives the lender the right – in certain circumstances – to convert its loan into an equity interest in the borrower. This form of debt is typically unsecured and subordinate to senior debt, and as such usually carries a higher interest rate. Lenders often prefer mezzanine financing over an equity injection as interest payments on debt are tax deductible. The caveat is that, should the mezzanine debt be converted into equity, the purchaser’s shareholders will experience ownership dilution. Overall, the convenient nature of mezzanine financing makes it well-suited as a secondary source of funding for acquisitions.

Many financing solutions are available to cater to the complex needs of the parties to a Canadian acquisition. Purchasers should be aware – in advance of seeking acquisition financing – that these arrangements can add complexity and time to a transaction. Further, in the Canadian private M&A context ‘financing out’ clauses are not common, and as such financing should be established early so that the purchaser is not forced to proceed without it. Those seeking advice about their acquisition finance options should contact a member of NRFC’s M&A or Corporate Finance teams.

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2019 in Review: eSports edition

The eSports industry experienced monumental growth in 2019 and is well underway to becoming a financially lucrative market.

By the end of last year, eSports had over 433 million global viewers, more than American Football and rugby combined, and is expected to reach over 645 million viewers in 2020. For perspective, the 2019 League of Legends World Championship alone amassed a peak viewership of 3.98 million, far surpassing earlier eSports viewership records.

2019 also marked the year that eSports became a billion dollar industry. In line with its massive following, eSports drew in record revenues last year, experiencing a 26.7% year-on-year growth. Sponsorships topped the charts and proved to be the most profitable revenue stream for eSports companies at $456.7 million, a 34.3% increase over the previous year. Media rights and advertising followed closely, with $440.5 million in combined revenues. The global eSports market is expected to grow to $1.79 billion by 2022.

Tournament prizes also saw a noteworthy increase in 2019 over the previous year, estimated to have reached a record $211 million, 29% higher than the previous year.

The eSports industry has now garnered a slew of partnerships and sponsorships, spanning a variety of industries. On the Canadian front, our firm advised a leading North American eSports company, Aquilini GameCo Inc., on the acquisition of Luminosity Gaming Inc. and Luminosity Gaming (USA), LLC, the subsequent amalgamation with J55 Capital Corp. and the arrangement with Enthusiast Gaming Holdings Inc. The merged entity, Enthusiast Gaming Holdings Inc., also acquired a non-controlling interest in the Vancouver Titans professional Overwatch eSports team and a non-controlling interest in a Seattle-based team in the newly franchised Call of Duty® esports league from Activision Blizzard. The transaction was the first of its kind in the eSports industry. In the media world, Microsoft’s Mixer signed an exclusive deal with the world’s most well-known streamer, Tyler “Ninja” Blevins, in an attempt to increase Mixer’s viewership and market share in the industry. And just last month, Louis Vuitton announced a collaboration with Riot Games. The retailer produced a 40-item collection inspired by Riot Games’ League of Legends, making this the first-ever collaboration between a luxury fashion house and a global eSports company.

2019 was undoubtedly a prosperous year for the eSports industry and the continued growth expected in the space makes eSports an attractive and exciting investment opportunity.

The author would like to thank Alexandra David, Articling Student, for her contribution to this legal update.

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NAFTA 2.1: Bringing certainty to an uncertain time

If there is anything that Canadian dealmakers are all too familiar with in 2019, it’s the concept of uncertainty. Raging trade wars, geopolitical tensions, elections, and a forecasted economic downturn are all pervasive in everyday conversation. Despite this, deal flow has remained robust throughout the first three quarters of 2019, as summarized in a recent post. Fortunately, significant uncertainty in relation to trade with the U.S. and Mexico is hopefully coming to an end.

Representatives from Canada, the U.S. and Mexico met last week to sign what some are calling “NAFTA 2.1” but is formally known as the Canada-United States-Mexico Agreement, or CUSMA. There are still hurdles before CUSMA becomes domestic law as each country must ratify it. Prime Minister Justin Trudeau said that Canada is currently deciding whether his government should reintroduce the bill to ratify the trade deal before or after the holidays. Experts on the topic agree that passing the bill is unlikely to be contentious in Canada.

We discussed the importance of tariff-free entry for goods and services from Canada into the U.S. previously. Canada is often viewed as a gateway to U.S. markets. As such, the prospect of this new agreement should perk up the ears of dealmakers both within and outside Canadian borders. With more certainty regarding U.S. and Mexican duties and tariffs on the horizon, companies will have a greater ability to assess the risks associated with supply chains and to value companies posed to the be their targets with increased confidence.

According to PricewaterhouseCoopers, in the first half of 2019, the number of inbound and outbound deals stayed relatively stable when comparing to the second half of 2018. Commentators reason that trade tensions and uncertainty cause dealmakers to proceed with caution. That being said, Crosbie and Co. reported that foreign acquisitions of Canadian companies increased by 7% in Q3 as compared with Q2, and were the highest quarterly volume since Q2 2017. The introduction of relative trade certainty should further encourage dealmakers to move forward with in-and-outbound acquisitions in 2020.

While the exact content of the amendments accepted by the U.S. House of Representatives are unknown at the date of writing, we do know that if CUSMA is passed by Congress (Congress is expected to vote on CUSMA in early 2020), at least cross-border dealmakers will have a level of certainty about trade relations between the three countries that has not existed in years. Dealmakers can hedge their risk on other areas instead, such as foreign geopolitical tensions and trade wars.

The author would like to thank Kiri Buchanan, articling student, for her assistance in preparing this blog post.

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Dealing with pending or threatened litigation in M&A

A significant consideration when considering an M&A target can be the impact that pending or threatened litigation has on the proposed transaction.

While some organizations may balk at the idea of acquiring a target that is (or is likely to be) the subject of a lawsuit, such companies are often available at significant discounts to purchasers that are able to understand and address the risks.

Each transaction will have its own unique considerations. However, an organization that is contemplating acquiring a target that is the subject of pending or threatened litigation should, among other items, address the following high-level considerations:

  • Due Diligence: Purchasers should involve litigation counsel at the outset of the due diligence process to understand and evaluate the costs, risks and likely outcomes of the litigation, as well as develop strategies to address those risks and engage with the target.
  • Negotiate the Costs of the Claim: Informed by the due diligence process, the parties may discuss which party will assume costs of the claim if judgement against the target is awarded. A purchaser may discount the purchase price by the quantum (if known) of the claim, or saddle the vendor with ongoing liability for the claim by way of specific indemnity.
  • Negotiate Control of the Defense: If the claims are fundamental to the purchased business, the purchaser will likely wish to maintain full control of the defense strategy in order to protect its acquisition. If the target is assuming control of the defense, the purchaser must stipulate that any settlement or admission of responsibility requires its consent or else it risks outcomes that may not be in its best interest.
  • Representations, Warranties and Indemnification: The purchaser must have sufficient assurances that the information that it has received from the target regarding the pending or threatened litigation is accurate in order to properly structure the litigation risks into the transaction. The target’s indemnification of the purchaser should, as specifically as possible, reflect the litigation risks identified in the due diligence in order to sufficiently protect the purchaser. Purchasers may also consider withholding a portion of the purchase price, subject to certain litigation outcomes, for additional protection.
  • Asset Purchase: If the litigation risks are too great for the purchaser, it may consider buying the assets of the business rather than the shares/units/interests of the target, and leave some or all of the liabilities behind with the target. However, purchasers should be aware that some liabilities, such as environmental liabilities, may follow the related assets without a specific assumption in the asset purchase agreement. Tax considerations of asset purchases are also very important to consider as we discussed in a previous post.

Each transaction will always have its own unique circumstances which should be evaluated by counsel. Please contact Norton Rose Fulbright Canada LLP for specific inquiries.

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Parties to M&A must be diligent about climate change

Climate change has become a high profile issue that is expected to have significant implications for M&A transactions going forward. As public awareness and scientific understanding of climate change continues to evolve, we are more informed about the climate change-related risks that businesses must grapple with and get ahead of. As a result, businesses need to be especially diligent in their assessment of a range of factors that may be impacted by the changing climate when completing M&A transactions. While the risks that should be considered will, of course, vary between transactions, the following is a list of climate-related factors that will likely be relevant to the majority M&A transactions.

The Sustainability of Assets in a Changing Climate

The sustainability of assets and operations, also termed “physical risk”, is always a crucial consideration when evaluating M&A opportunities. Changing weather patterns will further complicate this analysis going forward. For example, the risk of supply chain disruptions may increase as severe weather events become more frequent, while the possibility of changing sea levels may effect industries ranging from agriculture to tourism. Similarly, businesses that require significant infrastructure to operate may face the difficult decision between investing in assets that can withstand increasingly severe weather and risking the costly damage that may or may not occur if more affordable options are chosen. The vulnerability of certain regions to natural disasters – for example, forest fires – has already had a major impact on electricity providers in California as they proactively shut down service in an effort to prevent devastation.

The sustainability of assets should especially be considered in the due diligence and valuation phases of a transaction. Buyers and parties to a merger should consider, among other factors: the location of assets, how vulnerable the location and assets themselves are to severe weather events, the impact that severe weather events may have on assets, the local labour force, and supply chains, overall. Although speculative, the consideration of physical risks to a business should not be ignored.

In short, climate change has the potential to impact an exceptionally wide range of businesses, and failure to assess these risks when evaluating M&A opportunities may result in costly mistakes.


As both awareness and concern about climate change have grown rapidly among members of the public, environmental responsibility has become a central component of many companies’ branding strategies. Research has shown that consumers prefer to support brands that align with their values, and experience has shown that becoming the subject of environmental scrutiny can have drastic negative consequences for businesses. Accordingly, a brand’s reputation for environmental responsibility, good or bad, may be an important determinant of their value going forward. Transactions that move a business in an environmentally responsible or sustainable direction may magnify the value gained as a result of the merger or acquisition.

Transactions that facilitate eco-friendly branding may bring significant advantages, while transactions that reflect negatively on a brand’s environmental responsibility may risk leaving a company behind the eight-ball. Therefore, the values espoused by a brand are an important consideration in evaluating a transaction, particularly where environmental responsibility is an existing component of a company’s branding strategy.

Legislative changes

A third factor which warrants consideration when evaluating an M&A transaction is regulatory risk. The new federal carbon tax now in effect in much of Canada has been met with a wide range of responses. Some have argued that the tax will reduce the competitive edge of Canadian businesses and result in increased costs for consumers. Indeed, recent research suggests that the tax will cause a short-term increase in production cost of more than 5% in some industries. On the other hand, some have suggested that the tax may actually increase profits for some firms by encouraging investment in sustainable sources of energy and thereby reducing reliance on fossil fuels. While the business implications of the carbon tax are not yet clear, it is clear that the ability of businesses to adapt to legislative changes aimed at protecting the environment may be an important determinant of the profitability of a business going forward.

It is expected that further pro-environment legislative changes will follow as uncertainties related to climate change risk become increasingly mainstream and dire. Businesses considering transactions in carbon- or water-intensive industries such as, inter alia, energy, transportation, and agriculture, should pay special attention to the legislature and regulatory trends, globally. This way, buyers and sellers can be proactive about company policies, due diligence, transactional terms, and deal valuation. It goes without saying, then, that attention to the possibility of legislative changes is now a critical component of evaluating M&A transactions.

Parties to a transaction, regardless of the industry, should be diligent in their consideration of climate change-related risks. Although physical and regulatory risks may be specific to businesses operating in particular industries, branding and company values are relevant across all industries. Consideration of climate change-related risks may increase costs in the short term but attention to these risks is likely to pay off in the long term by way of: decreased risk associated with the sustainability of assets, increased value related to branding, and greater preparedness for predicted legislative change.

The author would like to thank Brandon Schupp and Kiri Buchanan, articling students, for their assistance in preparing this blog post.

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Location, location, location: Where’s your chief executive office?

In the context of cross-border secured financing transactions involving Canada and the United States, the rules relating to perfection and priority of personal property pledged in favour of a lender or agent are similar. In the U.S., Article 9 of the Uniform Commercial Code governs while each Canadian jurisdiction has its own personal property security regime.

The PPSA is largely based on the UCC framework and the PPSAs of each common law Canadian jurisdiction are generally very similar to each other. There are however, a few key distinctions between the UCC and the PPSA, one of which will be discussed below.

In the context of an all-asset pledge by a debtor in favour of a secured party, one notable difference between the UCC and the PPSA perfection frameworks relates to where registrations need to be made to perfect a security interest in collateral against a debtor. While there are some nuances with respect to the type of collateral in which the security interest has been granted which require analysis beyond the scope of this post, generally speaking, Article 9-301 of the UCC requires that for a debtor, irrespective of whether it is a U.S. or any foreign entity, the local law of the jurisdiction where the debtor is located will govern perfection, the effect of perfection or nonperfection, and the priority of a security interest in the debtor’s collateral pledged in favour of the lender or agent.

In most cases, the debtor’s location for purposes of the UCC will be its jurisdiction of formation or, if such jurisdiction does not have a searchable registry (which is of course not the case for Canada), its location would be deemed to be the District of Columbia. On the other hand, the PPSA approach requires a registration to be made in the location where the collateral is located to perfect against tangible personal property such as goods (which would include items like inventory and equipment). So for example, an Ontario company with operations only in Canada having tangible assets in Manitoba and Alberta would typically require PPSA filings in Manitoba and Alberta in order to perfect the security interest in such collateral. The PPSA framework for perfecting against intangible personal property (such as receivables or intellectual property) takes one of two approaches, depending on what “located” means for purposes of the particular PPSA – registrations need to be made where the entity is formed and where its place of business or chief executive office are located. For purposes of perfecting against our all-asset pledge, another registration would therefore need to be made in Ontario because the company was formed there.

Some PPSA jurisdictions, including Ontario, have caught up with the UCC framework in terms of debtor location. Where it gets interesting is when the chief executive office of a Canadian company is in the U.S. Sometimes the parent of a Canadian company is a U.S. company and the primary business dealings of the Canadian company are run out of the U.S. The chief executive office concept can be challenging to pin down because it is a factual rather than legal determination but let’s assume that it has been determined that our Canadian company’s chief executive office is in the U.S. To cover the bases in terms of conflicts of laws rules, a UCC filing would also need to be made in the relevant U.S. jurisdiction (plus, sometimes a DC filing is also made as a precautionary measure).

To close, in cross-border secured financings it is always important to ensure that it is determined (and represented, if applicable) where the chief executive office of a Canadian company is located.

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Cybersecurity in M&A Transactions: Friend or Foe?

The heavy reliance on technology in today’s data-driven world means that cybersecurity threats must be taken seriously. More specifically, with respect to M&A transactions, a target’s cybersecurity mechanisms have become an important part of the due diligence consideration. Indeed, it is important to have a firm grasp on the nature and extent of a target’s cybersecurity vulnerabilities, the likelihood of a breach, and the procedure in place to remedy a breach, if necessary. These considerations have the power to significantly alter the value of a transaction, or even derail it entirely.

With the introduction of EU’s General Data Protection Regulation – which caused ripple effects of tightened privacy legislation in other jurisdictions – compliance with the regulatory regime is an important factor. This is particularly because some targets may not even know that they are subject to certain regulations, and may be acting offside. For example, the GDPR’s strict privacy legislation does not only apply to processors within the EU, but also to any processors that target European data subjects. That is quite a broad reach. Therefore, a compliance assessment is also an important factor in determining the value and viability of M&A transactions.

Furthermore, a target’s contractual obligations with respect to cybersecurity, and specifically regarding the transfer of proprietary data is significant. Such obligations are often connected to incidents of cybersecurity breaches and the associated indemnity in such an event.

Additionally, “employee cyber hygiene”, which refers to how internal personnel are trained with respect to cybersecurity best practices, is also an important consideration. Fending off hacking attempts and reporting suspicious activity are things that employees should be trained in, since their acts could directly impact the cybersecurity of the company. Therefore, the level of employee knowledge and training in this regard can be a telling risk factor.

One of the most important points, however, is knowing whether the target has been the victim of a cybersecurity attack that caused damage to its high-value digital assets without management’s awareness or a clear understanding of its implications to the business and its IP assets. Lack of proper due diligence in this area could result in the acquirer taking on the damages and liability from such incidents in the past.

As such, a holistic understanding of a target’s current cybersecurity mechanism, as well as a history of any past incidents, can impact the value of a transaction since this type of information will yield a more accurate risk analysis.

The author would like to thank Saba Samanian, articling student, for her assistance in preparing this blog post.

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Canadian M&A Q3 2019 Review: Canadian M&A activity remains strong despite a slight decline in transaction volume

Crosbie & Company’s “Crosbie & Company Canadian Mergers & Acquisitions Report for Q3 2019” (the Report) reviews the minor slowdown in Canadian M&A activity in Q3 2019 following a record-breaking second quarter. While deal activity declined slightly in Q3 (776 announced transactions compared to 886 in Q2), the Canadian M&A market remained robust, posting its eleventh straight quarter (dating back to Q1 2017) with at least 700 transactions.

Highlights of the Report

  • Slight decline in transaction volume: 776 transactions were announced during Q3 2019 compared to 886 in Q2 2019, representing a 12.4% decrease from the previous quarter.
  • Non-mega deal transaction values align with recent trends: 767 non-mega deals (transactions valued at less than CAD$1B) were announced during Q3 2019, with an aggregate value of CAD$20.0B. This was on par with the average aggregate value of non-mega deals during the previous eight quarters (CAD$21.4B).
  • Cross-border activity remains steady while pure domestic deals see a noticeable drop: There were 336 announced cross-border transactions during Q3 2019 compared to 371 deals in Q3 2018, while there were 78 fewer Canadian buyer/Canadian target transactions, representing a 17% decrease year-over-year (378 in Q3 2019 compared to 456 Q3 2018).

Breakdown by transaction value

In Q3 2019, the Canadian M&A market had an aggregate deal value of CAD$45B, representing an average transaction value of CAD$26.1M, excluding mega-deals (CAD$1B+). This marked the first time in five quarters (since Q1 2018) that the aggregate deal value dropped below CAD$58B. Mid-market transactions below CAD$250M—a consistent and potent segment of the Canadian M&A market—accounted for 91% of the quarter’s transaction volume, yet were valued at only CAD$8.7B (approximately 19% of the quarter’s total M&A value). Deals under CAD$1B had an aggregate transaction value of CAD$20B, which was in line with the CAD$21.4B average value during the previous eight quarters.

The average size of mega-deals declined from CAD$3.3B in Q2 2019 to CAD$2.8B in Q3 2019. Of the nine mega-deals announced during this quarter, five were Canadian-targeted and the largest was an asset purchase transaction valued at CAD$6.2B.

Cross-border, domestic and foreign deals

Cross-border activity remained strong in Q3 2019 as the 336 cross-border transactions represented 54% of total deal value and 43% of total deal activity during the quarter. Canada/US cross-border transactions accounted for 66% of all cross-border activity, with 124 outbound transactions (Canadian buyer/US target) and 99 inbound transactions (US buyer/Canadian target). Indeed, US buyers were responsible for 71% of all Canadian targeted cross-border activity and 95% of the aggregate transaction value.

While Q3 2019 marked the eighth consecutive quarter with over 500 domestic transactions, domestic M&A activity experienced a 12.5% decrease in Q3 2019 (517 announced deals) compared to Q3 2018 (591). This year-over-year drop appears to be due in large part to the 78 fewer pure domestic (Canadian buyer/Canadian target) transactions compared to this time period last year.

Contrary to historical trends, Canadian buyers spent more money generating acquisitions domestically than abroad, spending 75 cents outside of Canada for every dollar spent within Canada. It follows that the most dramatic year-over-year decline was in the Canadian buyer/foreign target deal value, which totaled approximately CAD$32.6B in Q3 2018 and only CAD$8.2B in Q3 2019.

Industry Sector Activity

Real Estate continued to be the most active industry group in the Canadian M&A market: with 112 announced deals valued at CAD$19B, Q3 2019 marked the fifth consecutive quarter in which this sector accounted for over 100 transactions. The Telecommunication Services industry ranked second with a total deal value of CAD$5.7B. The Information Technology sector experienced a marked increase in deal volume (up 32% from 77 transactions in Q3 2018 to 102 transactions in Q3 2019), while Financial Services achieved the largest year-over-year increase in deal value (up over 450% from CAD$807M in Q3 2018 to CAD$4.5B in Q3 2019). Conversely, a few consistent Canadian M&A industry groups saw considerable year-over-year dips in total deal value, including Precious Metals (down 90% from CAD$8.9B in Q3 2018 to $869M in Q3 2019), Consumer Discretionary (down 60% from CAD$6.4B in Q3 2018 to CAD$2.6B in Q3 2019), and Energy (down 56% from CAD$9.3B in Q3 2018 to CAD$4.1B in Q3 2019).

Geographic distribution

Ontario and British Columbia remained the two most active provinces, accounting for 188 deals totaling CAD$17B and 131 deals totaling CAD$3.3B, respectively. Interestingly, Quebec’s 15% share of total deal volume accounted for only a 2% share of total deal value. In Q3 2019, Prince Edward Island posted the largest transaction in the province’s history – a private equity buyout of a drug manufacturer within the Healthcare industry valued at CAD$329M.


There is persistent optimism that the Canadian M&A market will remain robust, despite some public fear that the market—currently the longest bull market in modern history—may soon take a turn for the worse. Much of this resounding faith in the market’s resilience can be attributed to strong balance sheets, easy access to capital, aging business owners looking to monetize at current high valuations and buyers seeking to boost weak organic growth. As we prepare for 2020, it will be interesting to see whether the continued strength that has defined the Canadian M&A market throughout the 2010s will persist through the decade’s final quarter.

The author would like to thank Daniel Lupinacci, articling student, for his assistance in preparing this blog post.

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The Competition Bureau (the “Bureau”) is required to review certain merger transactions that exceed various financial thresholds, based on the size of the business being acquired and the combined size of the buyer, the target business, and their affiliates. The notification thresholds under the Competition Act (the “Act”) are discussed in more detail here. The Bureau reviews transactions that exceed these thresholds (“notifiable transactions”) to assess the potential competitive effects of the deal prior to its completion, and if the Bureau concludes that a transaction is likely to substantially lessen or prevent competition, they may seek a remedy (such as a divestiture) or an injunction to prevent closing. Although the Bureau has always had the jurisdiction to examine any transaction under the Act for up to one year after its completion, regardless of its size, deals that meet the criteria of a notifiable transaction create the greatest cause for concern and have historically attracted the most attention from the Bureau.

That being said, in May the Commissioner gave a speech which highlighted the Bureau’s plan to broaden its focus to include gathering intelligence on transactions that do not exceed the notification thresholds, but nonetheless raise competition concerns. In pursuit of its expanded mission, on September 17, 2019, the Bureau announced that the Merger Intelligence and Notification Unit (“MINU”), introduced in May, and previously called the Merger Notification Unit, is encouraging parties to voluntarily notify the MINU of transactions that present competition concerns even if the proposed transaction does not exceed the statutory thresholds.

The Bureau’s moves come after the M&A market has enjoyed relatively high activity in the past two years. Larger companies continue to acquire innovative start-ups and often these transactions do not meet the notification thresholds. However, the downstream competitive effects may be significant as there is concern that disruption is dampened with the early incorporation of an innovator into an incumbent.

In furtherance of this mission the Bureau announced it was seeking information from market participants in the digital economy related to why certain digital markets have become concentrated, potentially to the detriment of consumers. By gaining a better understanding of the digital economy market and its players, the Bureau aims to inform its investigations and strategies for protecting consumers, and provide guidance to market participants. The Bureau’s commitment of additional resources to aid in the battle against anti-competitive activity in smaller transactions, then, comes as no surprise and may be just one of its steps towards ensuring the digital economy does not lack competition and favours Canadian consumers.

Overall, the tension between the Bureau’s limited resources and the requirement that it act swiftly when met with a notifiable transaction means that the Bureau is unlikely to expand the notification criteria at this time. However, with the Bureau’s greater understanding of the digital economy and competition issues related to technology as well as its enhanced focus on smaller transactions, businesses must be cognisant of possible competition issues that their transactions present, even at an early stage in the process.

The author would like to thank Kiri Buchanan, articling student, for her assistance in preparing this blog post.

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