New share register requirements! Working towards greater corporate transparency

In November 2018, the Standing Committee on Finance released a report to address the issue of money laundering and terrorist financing in Canada. The Committee’s first recommendation emanated from the corporate registry regime in the United Kingdom (“UK”). In an attempt to emulate the UK’s system, the Committee recommended that the Canadian government work with the provinces and territories to maintain a register for all legal persons and entities with significant control over a corporation.

Requirements for share registers

On June 13, 2019, previous amendments to the Canada Business Corporations Act (“CBCA) came into force. These amendments, introduced in Bill C-86, require private CBCA companies to maintain a register of individuals who have significant control over the corporation. An individual with “significant control” over the corporation holds:

  1. Shares that carry 25% or more of the company’s voting rights, or
  1. Any number of shares equal to 25% or more of all the corporation’s outstanding shares measured by fair market value.
  2. Furthermore, these registers must now include information such as the name, date of birth, address, residence and other prescribed information for each shareholder who has significant control.

Access to share registers

After the implementation of share register requirements, clarification on access to these registers was necessary. As a result, the federal government introduced Bill C-97 in 2019. Although these provisions are not in force as of yet, these amendments to the CBCA are intended to delineate the parties with access to the shareholder register.

In particular, Bill C-97 requires private corporations to provide a copy of the shareholder register and any information contained in the register to investigative bodies, including any police force or the Canada Revenue Agency. These investigative bodies are authorized to request this information when they have reasonable grounds to suspect that the information would be relevant in investigating an offence committed by, and/or facilitated by, the corporation or an individual with significant control over the corporation.

Consequences of non-compliance

As of June 13, 2019, directors or officers who knowingly authorize the corporation to maintain a false register, or provide false information, are guilty of an offence. Similarly, shareholders who knowingly provide false or misleading information to the corporation are also guilty of an offence. The maximum penalty that can be imposed on directors, officers and shareholders is a fine of $200,000 and/or imprisonment for a term not exceeding six months.   Once Bill C-97 comes into force, if corporations fail to comply with the investigative bodies’ request, they may be found liable on summary conviction to a fine of up to $5,000.

A push for corporate transparency

These amendments to the CBCA reflect federal and international trends to help combat tax evasion, money laundering and corporate corruption. These safeguards provide effective mechanisms to ensure that law enforcement, tax and other investigative agencies have access to up-to-date information on significant corporate shareholders so they can accurately respond to criminal activities. With the clarifications provided in Bill C-97, it is expected that provinces and territories will mimic this federal legislative reform to be a part of the nationwide commitment to ensure greater transparency in corporate ownership.

The author would like to thank Nareesa Nathoo, summer student, for her assistance in preparing this legal update.

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Good eats: rising interest in dairy & meat alternatives driving M&A activity

As consumer demand for dairy and meat alternatives increases, established food manufacturers are looking to supplement their offerings by entering into M&A transactions with emerging meat and dairy alternative manufacturers. According to a recent report by the Good Food Institute (GFI), there have been 46 completed investments and acquisitions of vegan food manufacturers in 2018 alone, with the largest acquisition having a value of $12.5 billion. Many leaders in the meat industry are starting to acquire and invest in the dairy and meat alternatives market to tap into consumer demand. Investing in vegan alternatives is essential for food manufacturers to show growth to their investors and shareholders. GFI has shown that in 2017-2018, U.S. retail food sales grew 2% overall, whereas plant-based meat sales grew by 23%, exceeding $760 million in sales.

Although dairy and meat alternatives have been available since the 19th century, technology advancements and a cultural shift can help explain the recent surge in interest in vegan and vegetarian alternatives over the past 3 years:

  • Technology. With today’s technology, plant-based alternatives are not compromising on taste. While past vegan food manufacturers were not able to create plant based burgers that accurately mimicked the taste and texture of a meat burger, current options such as the Beyond Meat burgers not only feel and taste like a normal burger but are also found in the refrigerated meat case in grocery stores which makes the meat alternative more appealing to meat eaters as well as vegetarians or vegans.
  • Cultural shift. Individuals in Canada are cutting down on their intake of meat for health and environmental reasons. The new Canadian Food Guide launched in January encourages Canadians to incorporate more plant-based proteins into their diet. Canadian consumers are also beginning to take notice of the health benefits that come with eating more vegetarian and vegan meals. An estimated 6.4 million Canadians follow a diet that partially restricts meat.

As meat and dairy alternatives continue to become more readily available to consumers and cultural shift towards reducing meat-based protein continues, food manufacturers will be looking to expand their vegetarian and vegan alternatives to take advantage of the increased demand from consumers. As Bruce Friedrich, the Executive Director at GFI, recently stated: “we’re just at the beginning of [a] tremendous growth period for both the plant-based and cell-based industries.”

The author would like to thank Fatima Anjum, summer student, for her assistance in preparing this legal update.

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2019 M&A activity off to a strong start in financial services

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 trends in the Canadian financial services M&A market by examining several sectors.

1. Insurance

Compared to all other sub-sectors across Canadian financial services, insurance has experienced more activity in Q1 – with deal volume more than doubling the previous quarter. Access to speciality lines, technological capability, geographic expansion and adding scale are amongst the drivers of M&A insurance activity. KPMG expects that M&A activity in this sector will continue due to the market’s fragmented nature and the amount of high quality targets.

2. Asset and Wealth Management

Transactions relating to asset & wealth management in Canada has been steady. Deal value increased in Q1 by CAD 6.5 billion, while deal volume grew by 50 percent from the previous quarter. Drivers of M&A activity include competitive market pressure on fees, which include mutual fund fee reductions and ETF pricing, along with investment requirements for technology and regulatory compliance.

3. Banking, FinTech and payments

Although there has not been notable M&A activity by Canadian banks in the first quarter, the substantial level of M&A activity experienced south of the border by US banking could present Canadian banks with opportunities to continue to expand into the US market. However, high US banking valuations may be an obstacle. Moreover, additional banking transactions may be driven by divestiture of non-core operations for the remainder of the year, as “banks seek to free up capital and focus on strategic business lines and markets.”

On FinTech and payments, the year has begun with an encouraging start. KPMG believes that additional M&A opportunities may arise in Canada due to the anticipated changes to the Bank Act, since these amendments would allow banks to collaborate with FinTechs more efficiently. FinTechs are potentially disruptive and could function as a catalyst for future M&A activity, with banks hoping to acquire or collaborate with FinTechs in order to gain competitive advantage.

The outlook on the remainder of 2019 is positive, as growth or stability is anticipated. There are reasons to be optimistic about the deal-making environment in the Canadian financial services M&A market over the remainder of the year.

The author would like to thank Ceviel Alizadeh-Najmi, summer student, for her assistance in preparing this legal update.

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Uses of blockchain in the M&A process

We have previously explored some potential uses of blockchain in the M&A process. Generally, blockchain refers to a growing list of blocks linked by cryptography. Each block contains a timestamp and a link to the previous block. When a new block is added to the growing list, it is verified by independent parties on the peer-to-peer network and is by design, decentralized and resistant to modification of the data. The possibilities are immense – but ultimately, what are some of the ways that blockchain can help the M&A process?

One key area may be with the use of “smart contracts” – an umbrella term used to describe computer protocols that facilitate, verify or enforce the negotiation or performance of a contract. Blockchain allows further development of the smart contract, as parties can deploy their smart contracts on a blockchain, where all terms are transparent, unalterable and automatically enforced.

Another area is due diligence. According to some experts, a common problem in the due diligence process is the lack of diligence undertaken by seller companies on themselves. Occasionally, contracts are unsigned or signed by persons without requisite authority. For buyers to verify the validity and performance of these contracts, additional steps are often required, which increases the cost of due diligence. This problem could be avoided by recent developments in the blockchain legal innovation space.

Furthermore, in the context where a company employs many sub-contractors to complete a project, a distributive ledger process for smart contracts that allows for the transfer of legal documents and money safely and securely between all the parties involved. When such company is up for sale and going through the due diligence process, instead of tracking down every contract with different sub-contractors, their signatures and/or performance stages, the ledger can be used to easily verify the exact state of each contract.

Blockchain technology can also assist in recording intellectual property (IP) assets. Digital trails of records of IP assets are being created so that in a due diligence process, all inventions, designs and proofs of use can be quickly verified to prove ownership, integrity and transfers of the IP assets.

The potential benefits of blockchain may be endless, but ultimately, these benefits will be contingent on how widely the technology is adopted and the overall security of the application tools. We look forward to seeing how the trend develops.

The author would like to thank Victoria Liu, summer student, for her assistance in preparing this legal update.

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Full disclosure: financial assistance and related corporations

Many 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:

  1. a shareholder or director of the corporation or of an affiliated corporation;
  2. an associate of a shareholder or director of the corporation or of an affiliated corporation; or
  3. any person for the purpose of or in connection with a purchase of a share issued or to be issued by the corporation or an affiliated corporation (s. 45(3) of the Act).

Disclosure must include the following information:

  1. the identity of the recipient of the financial assistance and the recipient’s relationship to the corporation; and
  2. a description of the financial assistance, which must include: (i) the nature and extent of the financial assistance given, (ii) the amount of the financial assistance, (iii) the terms on which the financial assistance was given, and (iv) the purpose of the financial assistance.

In addition, the corporation must make such disclosure by sending the information to be disclosed to the shareholders within 90 days after providing financial assistance. Further, any increase in the amount of financial assistance and any changes to the terms on which the financial assistance was given must be disclosed to the shareholders within 90 days of the change.

There are certain exceptions to the disclosure requirement when a corporation provides financial assistance:

  • to any person in the ordinary course of business if the lending of money is part of the ordinary business of the corporation;
  • to any person on account of expenditures incurred or to be incurred on behalf of the corporation;
  • to a holding body corporate if the corporation is a wholly owned subsidiary of the holding body corporate;
  • to a subsidiary body corporate of the corporation;
  • to employees of the corporation or any of its affiliates, (i) to enable them to purchase or erect or to assist them in purchasing or erecting living accommodation for their own occupation, or (ii) in accordance with a plan for the purchase of shares of the corporation or any of its affiliates to be held by a trustee; or
  • to any person if all the shareholders have consented to giving the financial assistance (s. 45(4) of the Act).

Furthermore, a “body corporate” includes a company or other body corporate wherever or however incorporated, a body corporate is the holding body corporate of another if that other body corporate is a subsidiary, and a body corporate is considered a subsidiary of another body corporate if: (a) it is controlled by that other, (i) that other and one or more bodies corporate, (ii) each of which is controlled by that other, or (iii) 2 or more bodies corporate, each of which is controlled by that other, or (b) it is a subsidiary of a body corporate that is that other’s subsidiary.

Accordingly, parties should turn their attention to issues surrounding financial assistance early on in a transaction and should always be mindful of their disclosure obligations.

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Spreading like weeds: alternative cannabis products are on the way!

As we have previously discussed, Canada has positioned itself as a global leader in the cannabis space. That trend is set to continue on October 17, 2019, when it is expected that alternative cannabis products, which include edibles, infused beverages and topicals containing cannabis and cannabis concentrates will be legalized in Canada. The sale of a new and wider range of products will create valuable opportunities to tap into a growing market of consumers – particularly, those less comfortable with traditional cannabis consumption methods. According to a recent report published by Deloitte, it estimated that the Canadian market for these new products may be worth C$2.7 billion annually. Clearly, this has the potential to generate significant profits for cannabis retailers beyond products that are currently legal.

Although it is expected that edibles will likely account for approximately half of the increase in the market growth, there will be significant opportunity in capsules, topicals and cannabis-infused beverages. The global market for edibles and these other products is estimated to nearly double over the next five years to US$194 billion. Deloitte notes that the growth in the cannabis market with the introduction of these new products will continue to drive mergers and acquisition activity in this industry.

With the introduction of cannabis-infused beverages, alcohol companies and producers will want to avoid losing market share to competing cannabis products, thus paving the way for these companies to continue to search for growth potential in the cannabis industry through mergers and acquisitions, partnerships and joint ventures with existing cannabis companies. New products are likely to attract more pharmaceutical companies to this industry, which will be looking to draw consumers to their own Cannabidiol (CBD) products to manage various health issues.

M&A activity within the cannabis space has continued at a fast pace. Last year, there were over 700 transactions completed in the cannabis sector alone. The total value of these transactions was more than US$12 billion, with Canadian licensed producers being the most active. Currently, Canadian cannabis companies have some advantages over US companies, such as government support, access to capital markets and a supportive banking system. However, this could be changing. In December 2018, the Agriculture Improvement Act of 2018 (also known as the Farm Bill) was signed into law by Congress, thereby removing hemp as a controlled substance in the US. Hemp growers in the US will now also have access to similar advantages as their Canadian counterparts.

The new Canadian regulatory framework for alternative cannabis products will undoubtedly continue to progress and develop in the lead up to October 2019. As the cannabis industry changes, Canadian companies will need to maintain their competitive advantage through continual innovation, scientific research and working together with government regulators to expand into new markets, both locally and globally.

The author would like to thank Kevin Acuna, summer student, for his assistance in preparing this legal update.

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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 firms have entered the fray, accounting for many acquisitions of payments companies in recent times, in particular by making significant investments in fintech companies, which are often: valued at attractive multiples; generally asset-light; and able to generate significant free cash flow.

For example, global private equity firm Advent International has entered into over 30 payment company acquisitions in recent years. Also, consumer behaviour, attitudes and expectations have shifted, transforming the way they pay for products. Payments providers are pivoting in order to meet those demands and relying on M&A to do so. Technological capabilities, too, are improving at seemingly warp speed. Payments players have been capturing market share through inorganic growth by snapping up agile, innovative technology companies, thereby broadening their suite of offerings.

Global payments deal-making is likely to further accelerate due to a combination of the following:

  • Growth. Some estimates peg current global payments revenues in excess of $2 trillion per year, and increasing. The overall number of payments transactions is also increasing rapidly. A burgeoning market will continue to lead acquirers to circle, with a view of monetizing those growth opportunities;
  • Untapped markets. Realizing value in emerging markets, where the number of digital payment users is growing, will lead payments players to pursue M&A opportunities in developing economies. Where there is room for e-commerce and digital payments penetration, wider adoption is sure to follow;
  • Synergistic opportunities. Cost-cutting, cross-selling opportunities, gains in pricing power and better operating margins await global payments companies that snap up market share through business combinations;
  • Continuous innovation. While smaller, more nimble and agile companies innovate and pioneer new technologies, large payments players may ultimately need to resort to growth by acquisition to keep up with customer demands for enhanced technological capabilities, expanded range of services and a broad suite of product offerings; and
  • Battling fraud. One method of combating sophisticated fraud may be through acquiring specialized cybersecurity companies.

Scale and consolidation

The payments industry can largely be organized into two categories:

  1.  Front-end customer-facing products; and
  2.  Back-end infrastructure that is facilitative of payments transactions.

While payments M&A activity is likely to accelerate, the nature of deals may change. At this juncture, it appears as though the market is entering a consolidation phase where large-scale payments players are turning their attention away from smaller-market technology and software companies and eyeing up one another as targets.

In order to own the digital commerce payments track from start to finish, with end-to-end capability that spans the entire value chain and provides true full-service capability, large-scale payments players may resort to consolidating or vertical integration. Preliminary signs in 2019 are already demonstrative of this trend. For example, the purchase of Worldpay by Fidelity National Information Services Inc. (FIS) in March, for US$43 billion inclusive of debt, is the biggest ever transaction in the payments industry, by deal value.

Payments sector M&A activity engages numerous key areas for advisers and M&A lawyers, including:

  • Regulatory frameworks, compliance and oversight. New technologies are evolving constantly. Such shifting capabilities, in many cases, require appropriate levels of transparency and oversight to ensure compliance with applicable laws. Cybersecurity and anti-money laundering concerns are two sensitive areas that payments players should take into account in the context of M&A transactions.
  • Data protection, ownership and security. Global initiatives including open banking such as PSD2 and GDPR may be engaged by payments sector M&A activity. Issues relating to ownership, sharing and security of data are particularly relevant and should form the basis of governance models and decision making as it relates to pre-transaction and post-transaction planning.
  • Cross-border considerations. Funds flow and e-commerce matters often involve currency traversing international borders. A complex web of payments has fuelled the need for cross-border advice. Cross-border and cross-currency payments will require particular foresight and consideration.

Growth in the payments sector has repeatedly smashed estimates. Attendant M&A activity, in Canada and globally, is likely to flourish in pursuit of such growth. The movement away from cash by consumers and toward the electronification of payments, is gathering steam. Continued consolidation and healthy M&A activity is likely to naturally follow.

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

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Venture capital investments take off in the first quarter of 2019

The 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 VC deals in 2019 was higher than any other first quarter report since 2015. A significant factor for this increase is the number of mega-deals (worth CAD $50M+). The first three months of 2019 have already accumulated CAD $1B across 142 deals, with seven being mega-deals. These seven mega-deals made up 57% of the total amount of VC dollars invested so far this year, constituting a major departure from 2018 in which had 3 mega-deals accounted for a 34% share of the total investment in the quarter.

The majority (62%) of disclosed PE deals were for values below CAD $25M. While the average PE debt deal was 1.5 times greater than last year’s quarter, the total dollar amount of all PE investments for 2019 has never been lower for a first quarter report going back as far as 2014. The amount of PE dollars invested in 2019 has dropped significantly (by 72%) since Q1 2018. The largest disclosed deal for PE investments this year was for debt financing worth CAD $100M.

2. Investments by development stages

Companies in their later developmental stages (i.e., those with a product or service that is commercially available and generating revenue) received the majority of VC investments at approximately CAD $493M. Early-stage companies also received a significant portion of VC funding (CAD $362M), followed by growth equity (CAD $138M). Although companies in their later stages were more frequently part of mega-deals, one of the highest-valued deals (worth CAD $115M) involved a company in its growth equity financing stage.

3. Most active investments by jurisdiction

Ontario-based companies are maintaining their historical trend of attracting the most funding (CAD $481M ) and number of VC deals (54). Quebec is a close second in its number of VC deals (51) but not funding (CAD $198M). Five of the top disclosed deals were with Ontario-based companies. British Columbia had fewer deals (18), but these deals were larger in size compared to deals involving Quebec-based companies. With only 18 deals compared to Quebec’s 51, the discrepancy in funding was CAD $25M.

Toronto was the primary city for deal activity. Toronto had 47 VC deals worth CAD $416M, followed by Montreal (35 deals totalling CAD $146M) and Vancouver (13 deals totalling CAD $67M). PE deals followed a reverse trend where Montreal-based companies received 19% of the total funding (CAD $840M) and Toronto 15% (CAD $314M).

4. Sector hot spots

The concentration of VC investments is in the Information and Communication Technologies (ICT) (CAD $619M), Cleantech (CAD $201M) and Life Sciences (CAD $145M) sectors. The primary concentration of PE investments are also in the ICT sector (CAD $929M), with Industrial & Manufacturing (CAD $88M) and Consumer & Retail (CAD $474M) following suit.

The number and total value of VC investments continue to maintain their upward trend while their PE counterparts have been experiencing a decrease. The CVCA remains optimistic that “private equity activity will rebound in subsequent quarters.” High valuation is a possible explanation for slow PE activity in Q1, which is subject to change in a fluctuating investment environment.

The author would like to thank Tiana Corovic, summer student, for her contribution to the article.

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Bill C-97 amendments to the CBCA: broadening the scope of management considerations

The 2019 budget implementation bill (Bill C-97) contains significant amendments to the Canadian Business Corporations Act (CBCA), which should be noted by organizations wishing to acquire Canadian targets. On April 30, 2019, Bill C-97 passed its second reading and was referred to Committee in the House of Commons. The amendments to the CBCA create the following new considerations and/or obligations for the management of corporations governed under the CBCA.

“Best Interests of the Corporation” – more than solely shareholder interests

Bill C-97 aims to consolidate the law on the fiduciary duty of directors and officers by codifying the Supreme Court’s findings in BCE Inc. v. 1976 Debentureholders (BCE). Section 122 of the CBCA sets out that all directors and officer’s must “act honestly and in good faith with a view to the best interests of the corporation.” Historically, the “best interests of the corporation” was generally understood to be solely the interests of shareholders. However, in 2008, the Supreme Court in BCE found that the best interests of the corporation are not limited to any particular stakeholder and that “directors may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions.” The Bill amends the CBCA to comply with this broader interpretation. The amendments state, “when acting with a view to the best interests of the corporation … the directors and officers of the corporation may consider, but are not limited to, the following factors:

  1. the interests of: shareholders, employees, retirees and pensioners, creditors, consumers, and governments;
  2. the environment; and
  3. the long-term interests of the corporation.”

A broader conception of the interests of the corporation expands the scope of factors directors can be expected to consider when making managing decisions. This may affect not only the day-to-day operations of corporations but when and why management can implement defensive tactics in order to delay or prevent a hostile takeover bid.

“Say on Pay” – shareholder review of executive compensation

The new amendments will increase shareholder scrutiny of compensation allocated to the senior management of CBCA corporations. Under the amendments, prescribed corporations must formally develop an approach on the compensation of senior management. A report outlining this approach must then be provided to shareholders at each annual meeting for a non-binding vote. The results of this vote must then be disclosed to all shareholders. In spite of the non-binding nature of the vote, these amendments will increase transparency and shareholder involvement in setting executive compensation.

New disclosure requirements

Bill C-97’s amendments create a number of disclosure requirements for the directors of a CBCA corporation. These amendments are meant to increase the transparency and accountability of directors as Parliament recognized the diverse interests of shareholders. At each annual meeting the directors of a prescribed corporation will have to provide shareholders with information regarding:

  • the diversity among the directors and members of the senior management;
  • the well-being of employees, retirees and pensioners; and
  • the recovery of incentive benefits or other benefits paid to senior management. (Note that recovery of incentive benefits usually occurs when there has been an overpayment of compensation because prior financial statements were corrected or there was wrongdoing by senior management.)

The specifics of each of these disclosure requirements will be determined by the upcoming regulations associated with Bill C-97.

Implementation

While Bill C-97’s definition of “the best interests of the corporation” will come into effect upon Royal Assent, the “Say on Pay” provisions and other disclosure requirements are likely to come into force after the enactment of the associated regulations.

It will be important for prospective acquirers of CBCA corporations to stay aware of the progress of Bill C-97 and the associated regulations and their impact on the obligations of senior management.

The author would like to thank Arron Chahal, summer student, for his contribution to the article.

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Ready to rock! 2019 may see increased M&A activity among Canadian mining companies

2018 was a difficult year for Canadian mining companies. The aggregate valuation of TSX-listed miners declined by 12.7%, while equity capital raised by these companies declined by 36% from the previous year’s total. In this environment, new financings and deals have been scarce, but there is reason to believe that this trend might change in 2019, according to a recent publication by PwC.

A number of factors support the general prediction of increased M&A activity among TSX-listed mining companies. These factors include:

  • Increasing commodities prices. Spot prices for based and precious metals decreased across the board in 2018. However, according to PwC, “prices for several base metals, including copper, zinc and nickel, have shown significant gains in the first few months of 2019.”
  • Stronger balance sheets. Among the top 25 TSX-listed mining companies by market capitalization, cash flows from operations improved in 2018. Many of the companies opted to spend this cash on dividends, share buybacks, and paying down debt. The group’s debt-to-equity ratio decreased by almost 5% over 2018.
  • The re-emergence of the mega-deal. 2018 and 2019 have seen a number of deals that are noteworthy not just for their size, but for their implications to the mining landscape. Among these deals were the merger of Potash Corp. of Saskatchewan Inc. and Agrium Inc., the purchase of Randgold Resources Inc. by Barrick Gold Corp., the purchase of Goldcorp Inc. by Newmont Mining Corp., and Lundin Mining Corp.’s acquisition of Yamana Gold Inc.

PwC’s prediction regarding mega-deals could have a cascading effect. Newly consolidated senior companies will quickly move to discard non-core assets, which will be attractive acquisition prospects for mid-sized miners who may in turn seek to consolidate or form joint ventures in an effort to remain competitive. With miners sitting on strong balance sheets and commodity prices bolstering management confidence, there appears to be ample kindling to fuel the “mania” over mergers in the mining space. PwC concludes by noting that although this renewed excitement presents significant opportunity, “overall growth outlook is uncertain” and the industry still faces key challenges including exploration and development and cost control. In this context, identifying the right opportunity and unlocking its value through execution and innovation is more important than ever.

The author would like to thank Eric Vice, articling student, for his contribution to the article.

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