Topic: Corporate finance

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Securing Equity in Unsecure Times

Since the beginning of March, 15 companies within the S&P/TSX Composite Index have gone to market to raise capital. All but one did so by raising debt. By comparison, of the largest LSE listed issuers, 23 have raised equity and 10 have raised debt. It is clear – European issuers are favouring equity during this crisis.

Now is the time for Canadian issuers to raise equity.

Early in their response to the COVID-19 crisis, Canadian issuers focused on raising debt. But given the recent strength in the stock market and the risk debt poses to an issuer’s balance sheet, prudent … Continue Reading

Earnouts: Sharing Risk and Reward in Uncertain Times

The turbulent economic environment resulting from the COVID-19 pandemic has affected the M&A world in numerous ways. Among them is the increased focus on earnout provisions, both those in place from legacy deals and those being considered for inclusion in an upcoming transaction. This post provides an overview of the earnout mechanism and describes the alternative approaches dealmakers have at their disposal.

The purpose of an earnout is to allocate risk and reward between a purchaser and a seller in respect of the post-closing success of the acquired business. Earnouts are useful as a means of bridging the valuation gap: … Continue Reading

Private Equity Exits During COVID-19: What the 2008 Crisis Can Teach Us

In a previous post, we discussed the impact of COVID-19 on private equity transactions and how companies can prepare for upcoming economic changes. While opportunities for new investment are on the horizon with private equity funds presently flush with cash, movement on existing investments is likely to slow as sellers wait until markets stabilize before divesting their assets. Recent research suggests that funds with vintage years 2012 through 2017 are facing a lower exit pricing environment, which could lead fund managers to increase their holding periods and delay exiting until they can better recover their investments.

A look at … Continue Reading

New guidance on material climate change disclosure for reporting issuers

On August 1, 2019, the Canadian Securities Administrators (CSA) released CSA Staff Notice 51-358 in efforts to clarify the scope of disclosure for reporting issuers, specifically for smaller issuers. Securities law in Canada requires reporting issuers to disclose material risks affecting their business and, where applicable, the financial impacts of such risks.

While this notice does not produce any new legal ramifications, it is intended to reinforce and expand upon the guidance provided in CSA Staff Notice 51-333 Environmental Reporting Guidance. The driving factor to release this notice was motivated by the following considerations:

  • Increased investor interest.
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Venture capital investment once again shows strong year-over-year growth in H1 2019

The Canadian Venture Capital & Private Equity Association (the CVCA) recently published its 2019 first half (H1 2019) report on Canadian venture capital (VC) and Canadian private equity (PE) investment. Over the past year, Canadian VC investment has continued its ascent, reaching unprecedented heights and experiencing its strongest first half performance on record. Conversely, Canadian PE investment remains feeble, posting its lowest first half performance since the CVCA began collecting data in 2013.

A review of the increasing trends in the Canadian market reveals that VC investment in Canada is very robust and … Continue Reading

Both sides of the same coin? Examining the rise of sponsor-to-sponsor deals

As competition and asset multiples increase, private equity (“PE”) firms must find new ways to put their money to work. One way to create new value is through a sponsor-to-sponsor deal.

Sponsor-to-sponsor deals involve PE firms on both sides of a transaction – buy side and sell side. Due to their high cost and complexity, there is a general view that sponsor-to-sponsor deals tend to be inefficient. However, a recent report by Bain & Company’s Annual Global Private Equity Report 2019 (Report) found that sponsor-to-sponsor deals are on the rise, which implicitly suggests that these deals may not … Continue Reading

The anatomy of an alternative mutual fund: dissecting the alternative investment vehicle following recent CSA amendments

Traditionally, commodity pools existed as unique investment vehicles which, contrary to other Canadian public investment funds, were excluded from the investment restrictions and limitations codified in National Instrument 81-102 Investment Funds (NI 81-102). Earlier this year, as part of the final phase of its Modernization of Investment Fund Product Regulation Project, the Canadian Securities Administrators (the CSA) adopted a number of amendments to several National Instruments, including NI 81-102 and National Instrument 81-104 Commodity Pools (NI 81-104) (the Amendments), relating to the establishment of a regulatory framework for alternative mutual funds. When the Amendments … Continue Reading

Leave a mark: the growth trajectory of “impact investing” in Canada

Impact investing represents a continuation of Canada’s ongoing commitment to social finance, an “approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals”, as defined by the Government of Canada. The rapid growth of impact investing is driven largely by investor demand for addressing the social and environmental impact across various asset classes, according to a report released by the Responsible Investment Association (RIA) earlier this year (RIA Report).

The Start

The term “impact investing” was first coined in 2007 by The Rockefeller Foundation and … Continue Reading

Venture capital investments take off in the first quarter of 2019

The Canadian Venture Capital & Private Equity Association (the CVCA) has recently provided insights into Canadian investment trends for the first quarter of 2019 (Q1 2019). The CVCA has indicated that Private Equity (PE) deals have slowed in Q1 compared to their Venture Capital (VC) counterparts. VC investments have almost doubled since Q1 2018, whereas PE investments have declined by more than half. The CVCA has examined this trend by breaking down the latest developments from Q1 2019.

1. Overall trends in the number of deals and amount of funding

The value of … Continue Reading

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
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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

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Know your worth: should you disclose undisclosed intangibles on financial statements?

Intangible assets are the non-monetary, non-physical assets of a business, including its rights, goodwill, overarching brand, and other intellectual property (IP) (i.e., patents, trademarks, copyrights, trade secrets). These types of assets represented 52% of the global enterprise value in 2018; however, 80% of that value went wholly undisclosed on companies’ balance sheets. Why are businesses’ financial disclosures largely silent with respect to intangible assets? Should companies consider reporting on such resources?

Currently, the International Financial Reporting Standards (IFRS), which are commonly followed in Canada, do not allow for businesses to recognize most internally-generated intangible … Continue Reading

eSports: making it into the big leagues means learning the new rules

As mentioned in our first blog post on eSports, the eSports industry has experienced, and is projected to experience substantial growth. As the eSports industry continues to develop at a rapid pace, we are starting to see risks that are specific to the industry. In assessing whether a target is worth its price tag and whether its projections are attainable, the following are a few unique characteristics that pertain to the eSports industry that you should know about prior to entering into this space.

Know the game

Firstly, knowing the game and the third parties involved is crucial in … Continue Reading

Q3 2018 review: venture capital financing and deal activity decline after record-setting H1

PwC and CB Insights recently released their Q3’18 “MoneyTree Canada report (the Report), which provides an overview of investments in Canadian venture-backed companies. According to the Report, after an exceptional H1’18 (which we’ve covered in an earlier post), Q3’18 has seen a decrease in the number of deals, as well as in dollars invested.

General overview

According to the Report, Canadian venture capital (VC) funding has decreased for the second quarter this year, falling 42% to USD $541M in Q3’18 (from USD $927M in Q2’18). Similarly, despite a record-high of 127 deals in Q2, Canadian … Continue Reading

Securities laws – you should follow them

Raising money is exciting. Complying with securities legislation, however, is not quite as exciting, but it is necessary. It is a pain, at the best of times, and a constant struggle between lawyers, who would like every investor in your company to fill out a fifty page document detailing exactly how risky the investment is, and their clients, who would like the money now, please.

A big part of my job is seeking exemptions for my smaller clients from having to comply with the requirement to file a prospectus when they are taking in money. A prospectus is about 200 … Continue Reading

Tokenizing securities: is it worth it?

Tokenization refers to the process of converting the right to an asset into a digital token, issued, stored, and transferred on a blockchain (the latter of which we’ve covered previously). Many real world assets can be tokenized, including fine art and real property.

Of particular interest in corporate finance is the tokenization of securities, such as bonds, stocks, and derivatives. A crucial feature of security tokens is that they would be issued in full compliance with securities laws and regulations, making them more appealing to institutional investors.

Lower costs, higher liquidity

Private securities are often significantly less … Continue Reading

Vendor take-backs: a useful tool for financing M&A transactions

A vendor take-back (VTB) (or “vendor financing”) is a potential supplementary method of financing an acquisition transaction. It is often documented by a vendor take back note or promissory note. A VTB may be used as a type of non-consideration in conjunction with other forms of financing in order to facilitate an acquisition.

In a VTB financing arrangement, the purchaser satisfies a portion of the purchase price through financing, typically by issuing a note to the vendor. Under this arrangement, the vendor effectively loans a portion of the purchase price to the purchaser. VTBs can be used by … Continue Reading

Beware the zombie invasion (stock exchange edition)

On September 18, Deloitte released a new report which outlines a roadmap for the competitive business climate in Canada. Included in the report is a warning that “Canada may have a zombie problem.” Luckily, Deloitte isn’t raising concern about hordes of flesh-eating undead, but rather the relatively large number of “zombie companies” that exist on Canadian stock exchanges. The report identifies “zombie companies” as those who do not have enough earnings to cover their interest payments and found that out of the 2,274 companies listed on the Toronto Stock Exchange and the TSX Venture Exchange, 16% could be considered “zombies” … Continue Reading

Canadian venture capital investment continues to increase in H1 2018

The Canadian Venture Capital & Private Equity Association recently published its 2018 first half (H1 2018) report on Canadian venture capital (VC) and Canadian private equity (PE) investment. While Canadian PE investment remains feeble, Canadian VC investment has continued to climb to incredible heights.

A review of the increasing trends in Canadian VC investment, with respect to the volume and size of deals as well as the stages and sectors engaged, reveals that VC investment in Canada is very robust and showing no signs of slowing down. With H1 2018 already outpacing last year, … Continue Reading

Harmonizing cash collateral perfection rules between Canada and the U.S.

In secured financing transactions, cash is a popular and useful form of collateral. It is fully liquid, readily available and transferrable, and its value is always known. A debtor holding cash in a deposit account may wish or be required to use it as collateral for obligations such as loans, repurchases and derivative transactions. In order to maintain a perfected security interest in this cash collateral, a lender or agent will need to adhere to the applicable methods of perfection as set forth under the applicable provincial personal property security legislation (the “PPSA”). For the reasons outlined below, … Continue Reading

Regulators comment on securities law implications for offerings of tokens

On June 11, 2018, the Canadian Securities Administrators (“CSA”) published Staff Notice 46-308 Securities Law Implications for Offerings of Tokens (“Notice”).

The Notice follows from the CSA’s previous guidance in Staff Notice 46-307 Cryptocurrency Offerings, where the CSA explained that many cryptocurrency offerings involve the distribution of securities and are therefore subject to securities laws (including prospectus, registration, and/or marketplace requirements). The Notice expands upon this guidance to focus in particular on offerings of “utility tokens,” which is an industry term often used to refer to a token that has one or more specific functions, … Continue Reading

The deemed dividend dilemma: structuring your cross-border credit support

We frequently act as Canadian counsel to lenders and borrowers in cross-border transactions where credit support is provided to a US parent company by one or more of its Canadian subsidiaries. In structuring the deal, a considerable amount of time can be spent determining the extent to which the collateral of the Canadian subsidiaries should secured.

The reason for this dilemma is because of section 956 of the US Internal Revenue Code, which creates a deemed dividend on the income of any controlled foreign corporations (CFCs) irrespective of whether or not the dividend is in fact papered … Continue Reading

Due diligence defence for distribution of securities in breach of securities law

In furtherance of a proposed merger or acquisition, it is common place for an issuer to complete a concurrent private placement in order to, among other things, fund its working capital and current operations, complete the transaction or satisfy regulatory or administrative requirements post-transaction i.e., exchange listing requirements upon completion of a reverse-take over.

Notwithstanding such reason, it is absolutely necessary to the future of the issuer, its directors and officers and any agents, finders, or promoters, to appreciate and understand their responsibilities upon conducting a private placement, as illustrated in the recent British Columbia Securities Commission (CommissionContinue Reading

Venture capital and private equity exhibit disparate Canadian market trends in Q1 2017

According to a report recently published by the Canadian Venture Capital & Private Equity Association (CVCA) entitled “CVCA Q1 2017 VC & PE Canadian Market Overview: VC experiences robust quarter; PE flat in Q1”, Canadian venture capital (VC) recorded its second-best quarter since 2013, while Canadian private equity (PE) failed to outpace its current stagnant rate.

Interestingly, the VC deal volume in Q1 2017 (at 98 deals) ranked 13th among the 17 completed quarters since the start of 2013; meanwhile, the Q1 2017 aggregate value of money invested (at CAD$905) ranked … Continue Reading

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