Topic: Corporate finance

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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

Socially responsible investing: considerations for private companies

Certain consumers seeking out companies that have socially responsible products and services or that have a focus on environmental, social and corporate governance (ESG) is nothing new. Recently, however, evidence has emerged suggesting that investors, both retail and institutional, are increasingly taking these social factors into account when making decisions about how to allocate their investments.

Responsible investing

According to a recent study by the Responsible Investment Association, the Canadian market for responsible investments has grown by 49% over the past two years and has surpassed $1.5 trillion in assets under management. This suggests that Canadians are becoming … Continue Reading

Distressing prospects for distressed debt?

According to a Debtwire report released this month, the North American distressed debt market will be characterized by continued volatility throughout 2017, with the oil & gas sector presenting the most attractive opportunity for investors. Financial services, industrials and real estate were also identified in the report as being ripe for investment in the coming year.

Downward allocation trends

2016 saw a lower year-over-year asset allocation to distressed investing, with 50% of respondents stating that they had increased their allocation to distressed debt, compared to 68% of respondents in 2015. This downward trend was explained mainly by concerns over general … Continue Reading

The PE lifecycle is expanding

While private equity firms are enjoying more dry powder than ever, the overall fund lifecycle is expanding. Mergermarket interviewed private equity partners, directors and principals from across the United States and their responses point to increases in time in all three lifecycle segments of a fund: raising capital, searching for suitable targets, and exit.

Prolonged fundraising

For the majority of US GPs, the time period spent raising money from investors for their most recent fund was longer than the preceding one, 76% of the respondents needing between 9 to 18 months total. While fund lifecycles are extending, the amount of … Continue Reading

Taking stock of SPACs

While the CPC program has existed for a number of years under the TSXV and Special Purpose Acquisition Companies (SPACs) have long been a feature of American capital markets, as we alerted in October of last year, SPACs are a relatively new arrival in Canada, with the first Canadian SPAC created in April 2015. The TSX has described SPACs as giving investors the ability to participate in the acquisition of private operating companies. Despite their attractions, SPACs have so far failed to meet investor expectations, both with respect to their ability to close transactions and their effect on … Continue Reading

FinTech M&A: a wave or just a ripple?

While the rapid and exponential growth of Financial Technology (FinTech) companies appear to signal an impending wave of M&A, certain impediments exist that may mitigate these projections. FinTech companies develop and market technologies that facilitate a variety of financial transactions through electronic mediums. Since 2010, over 80 FinTech companies in Canada have garnered about $1 billion in investments. For private FinTech companies worldwide, investments have increased from $1.8 billion USD in 2010 to $19 billion USD in 2015. This unprecedented growth prompted the Competition Bureau to identify FinTech companies as potential disruptors to the Financial Services … Continue Reading

M&A update in the global metals industry

In the past, we reported on PwC’s ongoing analysis on M&A activity in the global metals industry. PwC released its most recent report in the series, entitled “Forging Ahead: First-quarter 2016 global metals industry mergers and acquisitions analysis” which breaks down the latest trends in the global metals industry, and provides insights into what the industry may expect going forward.

The major news coming out of the report is that deal volume declined to 14 deals valued at $50 million or more in the first quarter of 2016; however, deal value increased to $8.7 billion. The report concludes … Continue Reading

Britain without the EU: how will Brexit affect dealmaking?

DLW_680x220On June 23, 2016, Britons will be heading to the polls to determine whether or not the UK should remain a member of the EU. Given the stakes involved, the referendum is likely to have an impact on M&A activity in the UK, both before and after the vote.

The referendum

This is not the first time the UK has held a referendum on this question. In 1975, the British electorate voted in favour of the UK remaining a member of the European Economic Community (the predecessor of the EU) by a majority of 67%.

However, this time the results … Continue Reading

Growing M&A in the agrochemical sector

According to a recently published report by MarketsandMarkets Research, the global agrochemical market has grown significantly between 2000 and 2016. This growth has been matched by a flurry of M&A activity. In particular, the report highlights that:

  • the global agrochemical market grew from $28.78 billion in 2007 to $41.12 billion in 2013. This represents a growth of 43% over six years;
  • intense competition between the top players in the agrochemicals market has caused extensive consolidation over the previous decade. The top six companies now dominate more than 80% of the industry’s market share;
  • crop protection chemicals and herbicides were the
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Protecting buyers in M&A transactions: trends in the use of indemnification provisions

Allocating liability between buyers and sellers for the business and operating risks of a target company in M&A transactions is key to assessing what might be an appropriate purchase price for the transaction. As a result, the indemnification provisions in a purchase agreement are heavily negotiated with buyers seeking to limit their post-closing damages and sellers seeking to limit their liability for uncertain risks.

Recent trends in the use of indemnities are revealed in the 2016 SRS Acquiom M&A Deal Terms Study (the SRS Acquiom Study) which analyzed 735 private-target acquisitions that closed in 2012 through 2015.

Separate indemnities

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Record insurance industry M&A benefits Canada

We reported last year that global M&A in the insurance sector was rebounding after a decline resulting from the financial crisis. Now, the OPTIS Partners’ M&A database has reported a record high for North American insurance agency M&A in Q1 2016.

OPTIS reveals that an all-time high of 107 deals involving North American agencies were announced in Q1. Many transactions are unreported, meaning that there were likely even more deals.

This comes on the heels of OPTIS’ findings that 2015 was a record year for North American M&A, with 451 transactions.

The majority of transactions were carried out by private-equity … Continue Reading

Aerospace and defense M&A reaches new heights in 2016

jetWe told you in March of last year that aerospace and defense M&A activity had rebounded after a pullback in 2013. In July, we reported that M&A activity in the aviation and aerospace sectors was strong. Now, PwC’s Mission Control report for Q4 2015 has confirmed that 2015 was a record year for aerospace and defense M&A.

Total deal value in this sector in 2015 reached $61.7 billion, more than 50% higher than the previous highest year in 2007. The most recent report by PwC for Q1 2016 indicates that deal volume is down slightly as compared to Q4 2015, … Continue Reading

A buzz of M&A activity in the power industry

The power and utilities industry has seen a surge of M&A activity in the first quarter of 2016, according to a recent PWC report. The following highlights reflect an overall positive start to the year for the power and utilities sector:

  • Increase in total deal value. Total deal value for Q1 2016 hit $41.4 billion. This is up 260% from the previous quarter, where total deal value was $11.5 billion. Additionally, total deal value is up 508% compared to this time last year.
  • Increase in average deal value. The average value per deal reached $1.9 billion in Q1 2016,
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Mixed start to the year for the forest, paper and packaging industry

M&A activity in the global Forest, Paper and Packaging (FPP) industry took a dip in the first quarter of 2016 according to a recently released report (the Report) by Pricewaterhouse Cooper (PwC). PwC put the decrease of deal activity into perspective however with a press release last Wednesday, illustrating that while Q1 2016 was not as active as Q4 2015, 2015 was generally positive for the sector and PwC expects that the encouraging trends will continue this year.

The FPP industry saw an uptick of M&A activity in 2015 from 2014, with 143 deals announced … Continue Reading

Spotlight on Ukraine: a promising future for M&A activity

In March 2014, this blog featured an article discussing the effect of the recent crisis in Ukraine on M&A activity. The crisis began in November 2013 when Ukrainians protested en masse after then-president Viktor Yanukovych failed to sign an association agreement with the European Union. Yanukovyvh was ousted in February 2014. During that time and following, violent protest, armed conflict between separatist forces and the Ukrainian government, and the annexation of Crimea by Russia, played a substantial role in the contraction of Ukraine’s economy by 8% in the year 2014. Since this time, Ukraine has undertaken a number … Continue Reading

Getting the best (asset) deal: tax efficient purchase price allocations

The number one consideration for anyone buying or selling a business is price. But getting the best price is not just about the total cash value. How the purchase price is allocated across the various assets included in the deal has significant implications for the future tax liabilities of both purchasers and sellers. This article discusses some of the major considerations for purchasers and sellers in deciding how to allocate the purchase price in asset purchase agreements, and recent proposed changes to the tax treatment of goodwill which may alter the current allocation preferences of the purchaser and seller.

Inventory

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What can companies learn from PE sharks?

Divestment is one strategy that a corporation can use to unlock funds for future growth and create long‑term shareholder value. According to a recent E&Y study, a successful divestment must meet three criteria: (i) it must create a positive impact on the valuation multiple of the remaining company; (ii) it must generate a sale price above expectations; and (iii) it must close ahead of its timing expectations. Only 19% of the companies surveyed for the study met all three criteria. Considering that divestiture activities are likely to increase in 2016 (a more detailed discussion on 2016 divestiture outlook can … Continue Reading

M&A in the food industry

As the market changes, so must the food industry, and this has become evident in the M&A trends of the food and beverage sector. A PWC report entitled “An Appetite for M&A” outlines the challenges facing the food industry and how they impact M&A activity.

Five challenges are identified as forcing change in the food industry:

  1. Low growth in mature markets. The food industry has not recovered from the recession, which encouraged consumers to seek lower-priced goods, and forced manufacturers and retailers to maintain or lower prices.
  2. Pressure on margins. Despite the pressure to keep prices
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Shareholder representatives in M&A

The post-closing process can be complex and time consuming. Hiring a professional independent shareholder representative to manage post-closing matters, such as purchase price adjustments, indemnification claims, earn-outs and escrow management, may be beneficial for target shareholders and management. In recent years, shareholder representatives have been commonly used in the U.S., and they are becoming increasingly common in Canada.

There are many benefits to hiring a shareholder representative to deal with post-closing matters:

  • Avoid conflicts of interest. When the purchaser decides to continue to employ target executives and management post-transaction, there is an inherent conflict of interest for the target
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Transitioning to the PPSA’s new rules

In a previous blog post, we discussed the amendments to the rules under the Ontario Personal Property Security Act (the PPSA) which determine the location of the debtor for certain types of collateral and the jurisdiction for registration.  In this post we explore the transitional rules which will apply to security agreements made before December 31, 2015.

As described in the previous post, as of December 31, 2015 new Ontario debtor location rules (the New Rules) determine the jurisdiction in which a filing must be made for security interests where the underlying collateral consists of:

  • An intangible
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#Trubama, climate change and the oil industry: how will it impact M&A in 2016?

can-us-680x220Earlier this month, Prime Minister Justin Trudeau enjoyed an official visit to Washington that attracted significant attention and generated positive headlines for Canada-US relations. At the top of the agenda was the common goal shared between the leaders to combat climate change. Although “#Trubama” (the twitter moniker given to the pair) only have until November to work together before the US election, it will be interesting to see what impact a renewed focus on climate change will have on M&A in the oil and gas industry.

Much of the media’s coverage focused on the apparently warm relationship between the two … Continue Reading

Update: 2016 Federal Budget – Liberals drop tax proposal for employee stock options

Tuesday marked the release of the new Liberal government’s first budget. The budget, entitled “Growing the Middle Class”, did not contain the anticipated changes to the tax treatment of employee stock options discussed last week on Deal Law Wire. The proposed changes were first announced in the Liberal party’s election platform and would have capped claims for employee stock option deductions by high earners. Federal Finance Minister Bill Morneau indicated yesterday that the proposed changes to employee stock options are no longer in the federal government’s plans. This is good news for Canadian start-ups that voiced concerns that … Continue Reading

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