Broadly, a co-investment is an investment in a specific transaction made by limited partners (LPs) of a main private equity (PE) fund alongside, but not through, such main PE fund. This is often accomplished through a separately structured co-investment vehicle which is governed by a separate set of agreements. Co-investments are attractive to PE funds and LPs alike for a multitude of reasons, including as: a means for PE funds to gain access to supplementary capital; an avenue by which PE funds may make larger single investments that are otherwise unavailable or undesirable; and a means for LPs to attain … Continue Reading
Topic: Finance
Subscribe to Finance RSS feedLet’s see the money! Debt finance options in M&A
Posted in Finance, Financial institutions, M&AIn 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
Location, location, location: Where’s your chief executive office?
Posted in Finance, Financial institutionsIn 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 … Continue Reading
Canadian credit market overview: despite slowing growth, many aspects still on the rise
Posted in FinanceThe Bank of Canada (BoC) recently announced its decision to maintain the overnight rate target at 1 ¾%– while the Bank Rate and deposit rate are 2% and 1 ½% respectively – resulting in no shortage of backlash. In its press release, the BoC cites the escalation of international trade conflict as a factor in the constricting of business investment, and thus, is a heavy blow to the global economic momentum that it had projected to be an influential growth factor in its Monetary Policy Report (MPR) back in July. Uniquely, the BoC remains the only … Continue Reading
The anatomy of an alternative mutual fund: dissecting the alternative investment vehicle following recent CSA amendments
Posted in Corporate finance, FinanceTraditionally, 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
Posted in Corporate finance, FinanceImpact 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
Full disclosure: financial assistance and related corporations
Posted in Finance, Governance and directors' liabilityMany transactions involve financial assistance by means of a loan, guarantee or otherwise between related corporations. Often, an important consideration in these circumstances is: does such financial assistance trigger any disclosure obligations? Generally, a corporation may give financial assistance to any person (including an individual, partnership, association, body corporate, trustee, executor, administrator or legal representative) for any purpose (s. 45(2) of the Business Corporations Act (Alberta) (the Act)). However, a corporation must disclose to its shareholders financial assistance that the corporation gives to:
- a shareholder or director of the corporation or of an affiliated corporation;
- an associate of a
Global payments industry: frantic M&A activity not slowing down
A payments industry that was stagnant and stale for decades has recently entered a transformational and disruptive period of innovation, with seemingly boundless growth ahead.
Payments players have engaged in record-setting levels of global mergers and acquisitions (M&A) activity over the course of the past few years, but 2019 is poised to be yet another banner year for deal-making in the payments space. Rather than showing signs of plateau, this crescendo is set to continue beyond the immediate future.
The frenetic pace of M&A activity in the payments space recently has grown out of a confluence of factors. Private equity … Continue Reading
Venture capital investments take off in the first quarter of 2019
Posted in Corporate finance, FinanceThe 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
Fintech is thriving! Global investment more than doubles in 2018
Posted in Finance, Technology and innovationKPMG 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
Q3 2018 review: venture capital financing and deal activity decline after record-setting H1
Posted in Corporate finance, FinancePwC 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
Tokenizing securities: is it worth it?
Posted in Corporate finance, FinanceTokenization 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
Posted in Corporate finance, FinanceA 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
Harmonizing cash collateral perfection rules between Canada and the U.S.
Posted in Corporate finance, FinanceIn 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
Private equity and Canadian partnerships: tax considerations
Posted in Finance, Real estateCanada continues to be an attractive market for private equity (“PE“) investors with recent transactions highlighting significant investments into Canadian real estate and energy infrastructure assets.
Partnerships (particularly, limited partnerships) continue to be a popular PE vehicle, providing a means of pooling and aggregating investment funds and allowing for income or losses to be “flowed-through” to its members for Canadian tax purposes, subject to certain exceptions.
However, the use of partnerships with non-resident investors in PE investments raises two particular issues.
Withholding Tax
Part XIII of the Income Tax Act (Canada) (the “Tax Act“), requires that … Continue Reading
Debt, equity and tax credits: how films are financed
Posted in Finance
The other day I cued up a new release movie that I had been eagerly anticipating. As the opening credits rolled, I couldn’t believe how many entities were being credited. The list kept going and going, with a range of what appeared to be both governmental and private organizations. What could these organizations all have to do with making this movie? We have all seen the opening credits and title sequences to our favourite films, although if you’re like me, you probably don’t pay much attention to the cleverly named companies and funds that have earned a credit in the … Continue Reading
Distressed debt investing: the basics
Whether it’s the tightening of the credit markets, a regulatory shift, margin erosion due to influx of competition, or structural changes such as in the retail industry as of late: there are plenty of reasons that get companies into deep water and create opportunities for distressed debt investing in Canada. The more difficult question is how to identify, evaluate and capitalize on companies in distress.
Indicators of financial distress
The most obvious indicator of financial distress, at least in the public markets, lies in market trading prices. A distressed company will typically trade at below $1 per share with bond … Continue Reading
Crypto update: January crash, securitized tokens and threats to traditional VC
Posted in Finance, M&A, UncategorizedBloodbath in the CryptoMarket
For the past three years in January, Bitcoin experienced significant price corrections. This year is no different – except for its magnitude. Likely exacerbated by an influx of new investors and a spike in actively traded altcoins, Bitcoin depreciated by almost 50% from its all-time high in mid-December.
According to CoinMarketCap, the total market value of cryptocurrencies nosedived from USD $832 billion on January 7, 2018 to USD $450 billion on January 17, 2018, erasing USD $360 billion in value.
The price of the two other largest cryptocurrencies, namely, Ethereum and Ripple, dipped as much as … Continue Reading
Maintaining perfection post-closing
In a secured financing transaction, such as acquisition financing, a creditor would often protect its interest by creating, attaching and perfecting a security interest by registration in the personal property of the debtor or the guarantor. Once a deal closes, secured creditors would often forget to monitor their registrations to maintain perfection. Post-closing events such as (i) change to debtor name, (ii) transfer or sale of the collateral, or (iii) expiration of registration period are among the common events that may unperfect secured creditor’s security interest if left unattended in Ontario.
Change to debtor’s name
As per Section 48(3) of … Continue Reading
How are market participants dealing with the retirement of Libor?
Posted in Finance, M&A, UncategorizedEarlier this year I wrote about the Financial Conduct Authority’s (FCA) announcement in July of its plan to phase-out the London Interbank Offered Rate (Libor), the interest rate benchmark used to set payments on more than $350 trillion in financial contracts such interest-rate derivatives, corporate bonds, mortgage loans and more. The FCA’s intention is to retire Libor by the end of 2021, or perhaps more accurately, the FCA will cease to regulate Libor after 2021.
Several reasons, including a sharp decline in observable transaction reporting and the resultant susceptibility to manipulation have been cited as the … Continue Reading
The interesting thing about M&A is…
Many predicted that 2017 would be another record year for Canadian mergers and acquisitions (M&A). There are also currently some predictions that interest rates will continue to rise despite the recent announcement of a contraction in the economy. In this blog post we consider these two factors.
As depicted in Figure 1 below, while 2017 has seen a greater number of deals as compared to 2016, the value of these deals has generally been lower. Given the expectation of rising interest rates, this is consistent with our analysis that rising rates has little effect on the number of … Continue Reading
How can the crowd fund you?
Crowdfunding is a great way for businesses to raise a small amount of money from a large group of people to help fund a new business venture. However, businesses who use crowdfunding to raise capital by issuing securities in exchange for the money raised need to make sure they are not violating any securities laws by using a registration and prospectus exemption available in their jurisdiction. There are currently two exemptions from prospectus and registration requirements under securities laws in Canada for crowdfunding, start-up crowdfunding and equity crowdfunding.
Start-up crowdfunding
The first exemption is for start-up crowdfunding, available for start-ups … Continue Reading
Rising retail bankruptcies present ample opportunity for distressed investors
The recent giant retail bankruptcy filings by Toys ‘R’ Us and Sears Canada are not standalone cases in the retail sector. According to the recent Quarterly Report Of Business Bankruptcy Filings, in 2016, the United States experienced a year-on-year increase of 26% in the number of retail company bankruptcy filings. The sector generated 15.77% of all bankruptcies in 2017 year-to-date south of the border while the Sears Canada liquidation is making headlines in Canada.
The reasons for the bust of the traditional retail industry are plentiful. For one, the pressure from online retail platforms like Amazon, which is growing … Continue Reading
Overnight interest rate update: no change is good news for M&A activity
Today the Bank of Canada (the Bank) released its highly anticipated announcement regarding the overnight interest rate (the Rate). The announcement can be found in its entirety here. After previous successive Rate increases this past summer (as we reported on here), the Bank decided to maintain a steady course by keeping the Rate constant at 1 per cent, indicating a measure of return to normalcy. Apart from successive increases this past summer on the strength of the overall economy, the Rate had otherwise remained unchanged for the preceding seven years.
The broad implications of the decision … Continue Reading
