There is no doubt that the Covid-19 pandemic has resulted in unprecedented social and economic ramifications, including a decline in M&A activity in Canada. The pandemic has also brought in changes to the way agreements are being drafted in light of what has become our new normal. Earlier, we reported that the pandemic has led to an increased focus on earn-out provisions in both existing and new M&A deals. A recent trend also emerged in lending transactions, where lenders are agreeing to include portability language in loan documents, which may remove an obstacle for private equity groups that are looking … Continue Reading
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
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 … Continue Reading
M&A activity in the financial services sector has opened with a solid start. According to a KPMG quarterly update, the Q1 2019 report is the second highest than any other quarter since 2016 by deal volume. This positive start to the year suggests that the 11 percent increase in transaction volume last year may continue to surge. For both domestic and foreign buyers, the Canadian financial services sector continues to be an attractive investment. A robust Canadian M&A market is expected for the remainder of 2019 due to low-cost debt financing and supportive debt markets. KPMG has identified these … Continue Reading
Recently, Bank of Canada governor Stephen Poloz announced an increase in the interest rate from 1.25% to 1.5%. The increase comes as the Bank of Canada predicts a continued growth in the Canadian economy from exports and business investments. However, household spending may represent a smaller percentage of future economic growth due to the effects of a higher interest rate on consumers given that variable-rate holders may be forced to put their money elsewhere.
An increase from the Bank of Canada usually comes with increased costs for consumers. If precedent holds, the rise could lead to financial institutions increasing their … Continue Reading
On March 14, 2018, the US Senate voted (67-31) to advance S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Bill). The Bill, which will only become law with approval from the House and Congress, marks an unprecedented, bipartisan compromise to ease banking rules enacted following the 2008-09 financial crisis. If enacted, there may soon be good reason to anticipate a spike in M&A activity among mid-sized US financial institutions, including a possible increase in cross-border M&A activity involving Canadian institutions.
Proposed changes: an overview
Under current law, financial institutions with $50 billion or more in … Continue Reading
Big data analytics (big data) has established a reputation as a tool useful in the financial services arena, where it has enhanced banks’ abilities to personalize data of their customers to predict trends. More recently, big data is becoming popular in the context of mergers and acquisitions in all sectors.
What is big data analytics?
Big data refers to the collection and analysis of large volumes of structured and unstructured data, in real-time to create value for companies. Big data’s opportunity to leverage unstructured data is the real value-add it provides for companies. Unstructured data refers to … Continue Reading
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
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
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
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
Mergermarket recently released its 2015 full-year edition of Deal Drivers Americas (the Review). This comprehensive review of M&A activity in the Americas confirmed that 2015 was a year of mega-deals. Transactions involving giants such as Pfizer, Time Warner Cable, and Kraft contributed to an increase of 30% in M&A value, reaching a total of US$4.28 trillion across North America. In the US alone, deal value rose 40% since 2014, hitting a record high of almost US$2 trillion.
The Review evaluated by sector and by region. Some of the sector highlights include:
- Technology, media and telecom: Technology, media and telecom
2015 was a huge year for global M&A with deal activity reaching $4.2 trillion by the middle of December. If 2016 continues at the same pace, be prepared for a big year of M&A activity. In order to be well equipped for the upcoming year, ask yourself the following two questions when contemplating an M&A transaction.
Where are the key market opportunities?
According to the publication released by Raconteur entitled M&A Outlook 2016, on a global scale, five sectors are “blazing a trail”: financial services, telecommunications, pharmaceuticals, computer manufacturing, and oil and gas.
- Financial Services – Consolidation is the
A recent article in The Secured Lender magazine titled “Avoiding Lender Liability Claims: When Words and Actions Matter” canvassed lender liability claims and the steps lenders should take to avoid being held liable in certain circumstances to a borrower, guarantor or third party. Many of the suggestions are similarly relevant to borrowers (as purchasers in an M&A transaction or otherwise) to ensure they are following best practices.
A liability claim often arises where a borrower believes a lender failed to honour an agreement to lend under a commitment letter or an oral commitment to extend credit. This can be particularly … Continue Reading
Gone are the days when the focus areas for banks were largely M&A and growth. In addition to ever increasing regulatory and compliance obligations, banks are grappling with new technologies and innovations that affect the way in which banks interact with consumers.
Payment technologies continue to advance, with improvements in the security of contactless payments and increasing adoption of electronic peer-to-peer payments. Partially as a result, banks have access to more information about their customers’ behaviour, yielding data and analytics that can be exploited across all banking functions. Of course, the collection and use of “big data” dovetails directly into … Continue Reading
Similarly to American M&A in the first half of 2015, the first half of 2015 was remarkably active on the global mergers and acquisitions front. According to a recent Mergermarket report, total deal value topped US$1.7 trillion. This represents an increase of 15.2% over the first six months of 2014, and only 15.4% behind the record-setting first half of 2007, when US$2.1 trillion worth of deals were completed. With 7,136 transactions, it is interesting to note that total deal volume actually decreased by 15.7% compared to the same time period last year, but higher valuations explained the market’s … Continue Reading
Crosbie & Company’s quarterly Canadian M&A Report has indicated an overall decline in activity for the first quarter of 2015, with total deal volume down 7% and total value down 46% from the previous quarter.
Accounting for the decrease in deal value is the fact that the majority of transactions this quarter took place in the mid-market segment. While mid-market deals (under $250 million) represented 90% of all transactions this quarter, they accounted for only $9 billion, or 20% of total deal value. Mega-deals (over $1 billion), on the other hand, accounted for $26 billion in value, with … Continue Reading
Deal-making in the Middle East is on the rise. Consumer confidence is improving, credit is more readily available, and capital markets are maturing. However, the region still faces several challenges as investors remain cautious, looking for increased due diligence and post-closing protection.
According to speakers at the Megatrends in Mergers & Acquisitions conference in October, 2014, private M&A in the Middle East has been dominated by family businesses looking to divest core assets and private equity looking for growth. Outbound activity is limited because investors see growth prospects within the region. Global private equity players are becoming … Continue Reading
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
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
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.
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
Forecasts of increased M&A activity, combined with a global economic climate where risk aversion is the name of the game, present an opportune moment for examining M&A insurance as a viable means of reducing risks in business transactions.
The most common type of transaction insurance is Representation and Warranties (R&W) insurance, which targets the net liabilities facing parties in M&A deals.
Intended to help smooth negotiations and closings, R&W insurance seeks a balance between buyers’ concerns for losses resulting from breaches of representations and warranties, and sellers’ interests in liability protection. As an alternative to traditional mechanisms of risk management … Continue Reading
Grant Thornton recently released its 20th annual International Business Report on M&A in which it suggests the market for M&A looks strong both globally and in Canada, as businesses look to invest cash resources built up over a period of slow M&A activity. Based on our experience, we have certainly noticed an increase in M&A activity since late 2011 and early 2012.
The report surveyed 12,000 businesses in 40 economies and shows that businesses worldwide are more interested in M&A today (34%) than they were in 2010 (26%). The report found 42% of Canadian businesses are planning a merger … Continue Reading