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The impact of foreign exchange fluctuation on M&A activity

Deal Law Wire - Norton Rose FulbrightOver the past few years, we’ve seen the loonie plummet to lows not seen in decades. Although this is sad news for Canadian investors, it makes the Canadian market attractive foreign buyers who can acquire Canadian companies at a discount based on foreign currency exchange. Arguably, this bodes well for sellers who are highly motivated to sell as there may be a heightened number of offers for the business, which could result in a higher purchase price. At a time where globalization has made cross border M&A activities commonplace, fluctuations in currency rates play a significant role.

How significant? Although … Continue Reading

Picking it up for a song: deal considerations when purchasing a distressed business

Although a growing body of evidence—from job numbers to stock price figures—suggests that the Canadian economy is set for strong growth this year, there will always be companies (and industries) that get left behind for one reason or another. Where those companies that cannot meet their obligations have otherwise attractive assets, it presents an opportunity for those with cash on hand to pick up such assets (or companies) at a discount.

However, purchasing a business or assets out of a bankruptcy or other insolvency process does present challenges that are quite a bit different from those more commonly encountered in … Continue Reading

True sales: a refresher

Securitization remains an important tool for companies to realize value from future payment streams and raise financing, typically at a better cost of funds than the interest expense associated with a corporate loan or bond. While there are many different ways to structure a securitization transaction, it is of paramount importance to isolate the relevant cash-generating assets from the potential default and bankruptcy risk of the corporation. A typical transaction structure involves the sale of defined cash-generating assets (e.g., loans, accounts receivable) of a company to a bankruptcy-remote special purpose vehicle that issues securities to investors in order … 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

M&A transactions between fintech companies and traditional banks

Financial technology (fintech) companies like Square, Wealthsimple and Mint are already having disruptive effects in their respective industries, changing the way Canadians pay for goods and services, invest their savings, and manage their finances. A recent survey shows that Canadians are becoming less dependent on traditional banks given the variety of options to self-manage their finances.

At the same time, financings in the fintech sector have ramped up over the last five years. $7.4 billion was raised by venture-backed fintech firms in the first six months of 2016. As discussed in a previous blog post, there is … Continue Reading

Bitcoin update: cryptocurrency remains rare in M&A transactions despite potential

Bitcoin remains a fringe currency in the context of M&A transactions. Despite some notable advantages over fiat currency, the risks associated with funding a large transaction using the cryptocurrency have limited its use to deals between players in the Bitcoin space. This article provides an update to our previous article on Bitcoin’s viability as a currency for funding M&A transactions.

To date, there have been three notable M&A transactions funded with Bitcoin. Only one of these transactions was completed within the last year, with the other two closing in 2013. The initial excitement over Bitcoin’s use in M&A deals was … 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

Money makes the world go ‘round: lender protections in leveraged acquisitions

With Canadian prime and US federal interest rates maintaining an all-time low since the 1980s, the current market is well-positioned for leveraged acquisitions. Whether a purchaser does not have the liquidity to acquire a business or believes the potential growth of the investment will outpace any interest accumulating, the use of borrowed money to purchase a company is a shrewd business move.

Notwithstanding the favourable market conditions for leveraging, purchasers should expect that lenders will require certain lender protections in the acquisition agreement.

Xerox provisions

Introduced during the acquisition of Affiliated Computer Services, Inc. by Xerox Corporation (hence the “Xerox… Continue Reading

Financing with non-bank lenders

Currency

Non-bank lenders are increasing their market presence in both acquisition financing and the provision of financial solutions for ongoing operations, including in the asset-based lending context.  The increased presence of non-bank lenders seems to be driven by both the benefits of working with providers of non-regulated alternative capital source funding and the regulatory limitations faced by traditional bank lenders.

Banks are facing increased regulation which in some cases has the effect of restricting their ability to underwrite “riskier” transactions and may require the inclusion of loan covenants which do not suit a borrower.  In the event there is a change … Continue Reading

Weak loonie, no problem for Canadian institutional investors

2015 was not the kindest to the Canadian dollar as it saw its value depreciate by 15% when compared with the U.S. dollar. Despite the weakening Canadian dollar, Canadian companies remained undeterred in their pursuit of foreign acquisitions. According to a recent Bloomberg study, in 2015, Canadian companies acquired $205 billion worth of assets, almost triple the prior year’s amount and almost double the previous peak of $112 billion in 2007.

Canadian institutional investors have been the primary driver of this activity. As a result of volatile market conditions and slow domestic growth, Canadian pension funds have sought to … Continue Reading

Dealmaking in a negative interest rate environment

buildings_680x220The term “negative interest rates” was introduced into the Canadian vocabulary on December 8, 2015, when the Bank of Canada announced that it would be willing to use this “unconventional monetary policy tool” in the event of economic crisis. With the current benchmark interest rate of 0.5% already near historic lows, this announcement suggests that it has the potential to drop much lower – even below zero. The Bank of Canada stated that the effective lower limit, or “lower bound”, is now set at negative 0.5%.

While the Bank of Canada stressed that there are no current plans to take … Continue Reading

A global overview of December 2015 M&A activity

According to Mergermarket’s December insider, November 2015 was a record setting month for M&A activity. By the end of the month, global M&A value reached US$3.9tn which surpassed the 2007 full year record by almost 6%. This record came on a drop in volume by 1,228 transactions which further cements 2015 as the year of the mega deal. The top sector was Pharma, Medical & Biotech (PMB) with 84 transactions representing US$201.3bn. The driver behind this sector was the record breaking US$183.7bn Pfizer Inc.’s bid for Allergan PLC. This represented over 90% of PMB’s total deal … Continue Reading

The capital pool company: an alternative way to go public

Going public

Going public is, expectedly, the goal of many private companies and their founders. There are two methods of taking a private company public—initial public offerings (IPO) and reverse take-overs (RTO)—that draw the most attention in our capital markets and headlines, most often because of the lucrative opportunities or surprising arrangements that they create. But there is another method of releasing a company’s privately held stock for wider retail ownership which combines elements of both an IPO and RTO: the Capital Pool Company Program (the Program). Although a purely Canadian investment structure, the Program … Continue Reading

PPSA registrations in asset purchase transactions: when are they necessary?

In asset purchase transactions involving the sale of accounts receivable, questions often arise about whether a registration under the applicable provincial Personal Property Security Act (PPSA) will be necessary. The answer to this questions depends on a number of factors, including where the seller’s accounts receivable are located and whether a party is the purchaser or the seller of the assets.

If the accounts receivable of a seller located in Ontario are being sold, an Ontario PPSA financing statement may need to be filed showing the seller as “debtor” and the purchaser as “secured party.” This is due … Continue Reading

M&A in Canada: industry revenue and profits

Expanding growth in nearly all sectors

Norton Rose Fulbright focuses its services on 6 key industry sectors and, according to a study released recently by the Globe and Mail on Canadian corporations, almost all of these sectors have seen an expansion in revenue and most have seen growth in profits during the period from 2011 to 2015. While such expansion does not on its own drive M&A activity, it is important factor for identifying trends. Industries with the greatest growth may see increased M&A activity in the future; likewise industries with prolonged under-performance may be primed for consolidation.

Banking

1

The … Continue Reading

Proposed changes to TSX rules concerning M&A

The Toronto Stock Exchange (TSX) recently published for comment certain proposed amendments to the TSX Company Manual (the Manual), which regulates issuers listed on the TSX. The comment period closed yesterday, on January 13, 2014.

The proposed amendments target two aspects of mergers and acquisitions involving TSX issuers. Firstly, the changes seek to modify the Manual’s rules dealing with the creation of security-based compensation schemes in the context of acquisitions by TSX listed companies. Secondly, the amendments seek to clarify and codify the rules that apply to reverse takeovers (“backdoor listings”) of issuers listed on the exchange.… Continue Reading

Q3-2013 Canadian M&A activity: the results are in

The results are in for Q3-2013 Canadian M&A and the outlook is decidedly mixed. While Q3 M&A activity rose sharply on a value basis as compared to Q2-2013, Q3 volume was down from last quarter and overall 2013 M&A remains in a slump at the lowest levels in nearly a decade.

Mergermarket’s Canadian M&A trend report highlighted some less than ideal statistics for the Q1-Q3 period, stating that M&A activity during the period actually fell to the lowest levels since Q1-Q3 2004 and was down 34.6% from the same period in 2012. However, it went on to indicate that so … Continue Reading

Q2 2013 M&A Trends

Canadian M&A Q2 2013 results have not provided the desired relief from lacklustre Q1 results. However, while not much of the lost ground was gained, the sharp decline in M&A activity experienced in the first three months of 2013 appears to have subsided.

According to Bloomberg’s recently published M&A Rankings, these results are in line with global M&A trends. Although global M&A volume decreased by 10% from the same period last year, it increased by 3% to $489 billion from Q2 2013. Deal making activity was highest in the Americas, where Canada was second only to US in rankings … Continue Reading

Q1 2013 M&A Trends

Canadian M&A continued its decline in Q1 2013, reaching lows not seen since Q1 2009.   According to Crosbie & Company Inc.’s Q1 2013 M&A Report, which compared M&A activity results from Q4 2012 to Q1 2013, the market has declined significantly both in transaction value (51%) and volume (35%).  Specifically, while Q4 2012 saw 301 transactions valued at $52.8 billion, Q1 2013 saw 196 transactions valued at $25.9 billion.

PricewaterhouseCoopers (PwC) noted similar trends in their recently released report, Capital Markets Flash: Q1 2013 Canadian M&A Deals Quarterly, including that:

  • the decline in Canadian M&A activity was largely
Continue Reading

Trends in Q3 M&A activity

People walking in building lobby

Canadian M&A activity was down sharply in Q3, but the proposed $15.1 billion takeover of Nexen Inc. by China National Offshore Oil Company Limited drove the overall value of deals up 23% over Q2 and 16% over Q3 2011.  PricewaterhouseCoopers (PwC) recently released its report, Capital Markets Flash: Q3 Canadian M&A Deals Quarterly, which outlined the following developments:

  • Q3 2012 saw 599 announced Canadian M&A transactions worth $58.6 billion.  Volumes were down 17% from Q2 2012 and 21% from the same period last year.
  • Domestic M&A activity slumped 47% from Q2 and 50% when compared to the same period
Continue Reading

Increasing focus on M&A alternatives

With increasing cash reserves and a stagnant economy, firms are looking for alternatives to M&A for excess cash, including returning capital to shareholders by way of repurchase, dividend and debt reduction.

Canadian currency

According to the Thomson Reuters fourth annual Outlook for Investment Banking Services Survey, as valuations continue rising in the Americas, firms are becoming less interested in using cash for M&A transactions, with 36% of respondents believing firms will continue building cash reserves, up from 25% last year. Of those surveyed, 33% cited repurchasing shares as a top priority for 2013 (versus 27% for 2012) and 32% cited distributing cash … Continue Reading

Q3 M&A Trends

Thomson Reuters recently released its Q3 Mergers & Acquisitions Review – Financial and Legal Advisory Review. Overall, worldwide M&A totalled US$455B, but was down 16% from 2011, with quarterly activity down 13%. The United States was the biggest contributor to Q3 M&A activity, accounting for 43% or US$195B of the worldwide total.

Despite the general decline in M&A activity, there are some figures to be hopeful about. Cross-border M&A activity totalled US$678.9B during the first three quarters of 2012, accounting for $41% of overall M&A volume and down just 1% compared to the first three quarters of 2011. The … Continue Reading

M&A Trends for Q2

 Yesterday Price Waterhouse Cooper released its Q2 M&A report on the 721 deals worth $47.7 billion announced in that quarter, and there were a few surprises. Although deal volumes, as expected, declined 7% over Q1 and 14% over Q2 2011, many Canadian entities are focusing on foreign markets, including Europe. In Q2 Canadian acquisitions into foreign markets hit $21.8 billion, with $15.1 billion of that headed into Europe. Other notable markets were Chile and South Korea who accounted for 74% of the almost $2.1 billion spent in struggling growth markets.

 The report also noted that although there was a decline … Continue Reading

Canada’s approach to the Eurozone crisis

The most recent EU summit took place in late June, leading to an agreement among leaders to create a joint banking supervisory body for the Eurozone and implement a planned bailout fund for struggling banks.  While analysts have applauded these steps as key achievements toward steadying markets in both the short and long term, questions remain with respect to the future of the Eurozone and its impact on existing and new transactions for Canadian companies.

Preparing for the unknown future of the Euro requires an understanding of the factors that may affect your business. There are various potential outcomes to … Continue Reading

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