MAC/MAE Clauses in the Context of COVID-19

A recent Ontario decision of Fairstone Financial Holdings Inc. v. Duo Bank of Canada (“Fairstone”) became the first Canadian case to consider material adverse change (“MAC”) or material adverse effect (“MAE”) clauses in the context of COVID-19.  In Fairstone, Duo Bank of Canada sought to invoke the MAC/MAE clause to exit the transaction but the court did not allow it to do so.  This blog explains the reasoning of the court and takes a broad look at the law of MAC/MAE clauses within the context of COVID-19.

MAC/MAE Review

MAC/MAE is generally defined as … Continue Reading

Does board diversity lead to better M&A outcomes?

Board diversity has been at the forefront of the Canadian governance landscape for a number of years, and has recently been the subject of increased stakeholder focus. While gender and racial parity are ends in themselves, recent research shows that board diversity may be particularly beneficial in the M&A context.

The current state of affairs

Since 2014, Canadian securities regulators have required certain issuers to publish data on the representation of women on their boards and disclose the details of their gender diversity policies (or, if they do not have one, explain why not).

More recently, the federal government amended Continue Reading

Navigating through Uncertainty: The U.S. Election’s Effect on Canadian Markets

After a highly contested election that was observed all over the world, Joe Biden – the Democratic Party nominee –  was elected as the 46th President of the United States . Leading up to the election, North American markets continued to see weeks of stagnant trading as investors held back due to the prevailing uncertainty. However, markets recovered on the eve of the vote, with the S&P/TSX composite index closing up 116.23 points.

Historical Trends

In the past, the S&P/TSX has generated better returns one year after the election of a Democratic president (+12.3%) as compared to a Republican … Continue Reading

Goodwill Hunting: The Value, Protections and Role of Intangible Assets in M&A Transactions

We have previously discussed goodwill as a distinct asset in purchase agreements.  In this post, we explore the growing value of goodwill and other intangible assets in mergers and acquisitions (M&A) and the legal issues parties should consider when seeking to value, protect and exploit these assets.

Intangible assets are often the most significant portion of a target company’s value and goodwill alone can be a very significant portion of a target’s purchase price. For example, in Amazon’s acquisition of Whole Foods, approximately 70% of the purchase price was allocated to goodwill. Although goodwill and intangible assets each … Continue Reading

Digital Taxation – Novel Considerations in M&A Transactions

Digital taxes have become a subject of significant debate in recent years. Following allegations that tech giants have paid very little tax anywhere in the world, some countries have moved to impose new taxes on profits derived from digital services provided by multinational enterprises on a jurisdiction-specific basis. For instance, France recently adopted a digital services tax of 3% per annum applicable to the portion of revenue that digital companies derive in France. Similarly, as of April 1, 2020, the UK imposed a 2% per annum tax on the revenue of search engines, social media services and online marketplaces that … Continue Reading

Proposed Amendments to Ontario’s Business Corporations Act: Relaxed Corporate Governance Requirements May Make Ontario an Attractive Jurisdiction

On October 6, 2020, the Government of Ontario introduced Bill 213, Better for People, Smarter for Business Act, 2020 (“Bill 213) to support the province’s economic recovery and reduce barriers to doing business in Ontario. If it passes, Bill 213 would bring important changes to the Ontario Business Corporations Act (“OBCA”) that, among other things, will:

  • Remove the director residency requirements for private and public OBCA corporations; and
  • Lower the threshold for passing written, ordinary resolutions for privately-held OBCA corporations

Removal of Director Residency Requirements

Currently, the OBCA requires that at least 25% of the … Continue Reading

Post-Closing Adjustments

Previously, we wrote about the use of earn-outs as a means by which buyers mitigate the risk of a target’s post-closing under-performance by holding back part of the purchase price and paying it out as the target meets certain financial targets.  In this post, we examine a related topic that is often confused with earn-outs but in fact is a separate tool in a deal-maker’s kit: post-closing balance sheet adjustments.

Unlike an earn-out where parties look to the future performance of an acquired business, a balance sheet adjustment is the parties’ opportunity to draw comparisons between the business as it … Continue Reading

The Dynamic Duo: Cyber-security and Due Diligence during the COVID-19 Pandemic

The widespread impact of the COVID-19 pandemic (“pandemic”) continues to highlight the several ways in which M&A transactions have had to adapt to changing times, particularly by ramping up cyber-security measures in a digital world. Prior to the pandemic, there already existed a shift towards cyber-security due diligence since many businesses relied on digital assets. As a result, increased protection was paramount since a deficiency in the cyber-security measures of a target could lead to potential liability on the part of the buyer, after the transaction had closed.

Another Shift Caused By The Pandemic

The pandemic forced many … Continue Reading

Shareholder Loans: The Interplay of 80.4, 15(2) and 20(1)(j) of the Income Tax Act

Subject to certain exceptions, where a shareholder (other than a corporation resident in Canada) of a corporation is indebted to the corporation (a “Shareholder Loan”), the shareholder is deemed by subsection 80.4(2) to receive an interest benefit to the extent that the notional interest on the Shareholder Loan, calculated at the prescribed rate, exceeds the interest actually owing and paid. However, for a Shareholder Loan that was included in computing the income of a person under Part I of the Income Tax Act (for example under subsection 15(2)), paragraph 80.4(3)(b) provides that no subsection 80.4(2) interest benefit is … Continue Reading

What’s the Alternative?: The Rise of Alternative M&A Deals in a Post-COVID World

Mergers and acquisitions activity was already off to a slow start when 2020 began, but the COVID-19 pandemic (the “Pandemic”) initially resulted in a further decline in the volume of M&A activity. This was due in part to the economic and commercial uncertainties and market volatility for buyers and sellers alike, which made it difficult for companies to conduct business as usual. However, it looks like M&A activity has picked up again with gusto. In an earlier post, we reported that in a global survey of 2,900 C-suite executives, more than half of them reported that they … Continue Reading

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