Tag archives: Canadian M&A

COVID-19 Series: Considerations and Modifications of Certain Provisions in M&A Agreements (Valuation and Post-Closing Pricing Mechanisms)

In recognition that businesses are adjusting to their “new normal” and some companies are exploring acquisitions or divestitures as opportunities to strengthen their bottom line, we will be publishing a series of blogs aimed at highlighting some of the considerations and key drafting areas in a purchase and sale agreement that parties to Canadian private M&A transactions should consider in light of the COVID-19 pandemic.

Valuation Gaps

The impact of COVID-19 creates a lot of challenges in determining the valuation of a target – which ultimately, helps the parties determine the price of the shares or assets being sold/purchased. For … Continue Reading

Measuring The Impact Of COVID-19 On Canadian M&A

The future of M&A beyond the COVID-19 pandemic remains fiercely debated and quite unclear. We’ve already seen transactions and their underlying agreements change in a number of ways, including more scrutinized structures, and more detailed negotiations regarding contractual carve-outs, such as material adverse change and force majeure clauses. As previously noted, this will undoubtedly lead to significant changes to M&A transactions in the near future. In addition, the COVID-19 pandemic has shown to have a macro-level impact on M&A transactions. Indeed, EY’s recent M&A report “Global Capital Confidence Barometer” (the Report) has analyzed COVID-19’s influence on M&A to-date, and … Continue Reading

Acqui-hiring: What we know and what we need to know from a Canadian perspective

“Acqui-hire” transactions, which are particularly prevalent in the context of start-up technology-related M&A transactions in the U.S., focus on acquiring a company primarily to obtain its employees and their skills, in addition to other possible assets (see our earlier post on acqui-hires). In these type of transactions, it is thought that the greatest perceived value in the target lies in its employee base or segment(s) thereof. If there is also perceived value in the intellectual property (IP) or other assets of the target company, an acquiror might purchase those assets and possibly license them back. In some cases, … Continue Reading

Let’s see the money! Debt finance options in M&A

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
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2019 in Review: eSports edition

The eSports industry experienced monumental growth in 2019 and is well underway to becoming a financially lucrative market.

By the end of last year, eSports had over 433 million global viewers, more than American Football and rugby combined, and is expected to reach over 645 million viewers in 2020. For perspective, the 2019 League of Legends World Championship alone amassed a peak viewership of 3.98 million, far surpassing earlier eSports viewership records.

2019 also marked the year that eSports became a billion dollar industry. In line with its massive following, eSports drew in record revenues last year, experiencing a 26.7% … Continue Reading

NAFTA 2.1: Bringing certainty to an uncertain time

If there is anything that Canadian dealmakers are all too familiar with in 2019, it’s the concept of uncertainty. Raging trade wars, geopolitical tensions, elections, and a forecasted economic downturn are all pervasive in everyday conversation. Despite this, deal flow has remained robust throughout the first three quarters of 2019, as summarized in a recent post. Fortunately, significant uncertainty in relation to trade with the U.S. and Mexico is hopefully coming to an end.

Representatives from Canada, the U.S. and Mexico met last week to sign what some are calling “NAFTA 2.1” but is formally known as the Canada-United … Continue Reading

Dealing with pending or threatened litigation in M&A

A significant consideration when considering an M&A target can be the impact that pending or threatened litigation has on the proposed transaction.

While some organizations may balk at the idea of acquiring a target that is (or is likely to be) the subject of a lawsuit, such companies are often available at significant discounts to purchasers that are able to understand and address the risks.

Each transaction will have its own unique considerations. However, an organization that is contemplating acquiring a target that is the subject of pending or threatened litigation should, among other items, address the following high-level considerations:… Continue Reading

Parties to M&A must be diligent about climate change

Climate change has become a high profile issue that is expected to have significant implications for M&A transactions going forward. As public awareness and scientific understanding of climate change continues to evolve, we are more informed about the climate change-related risks that businesses must grapple with and get ahead of. As a result, businesses need to be especially diligent in their assessment of a range of factors that may be impacted by the changing climate when completing M&A transactions. While the risks that should be considered will, of course, vary between transactions, the following is a list of climate-related factors … Continue Reading

Cybersecurity in M&A Transactions: Friend or Foe?

The heavy reliance on technology in today’s data-driven world means that cybersecurity threats must be taken seriously. More specifically, with respect to M&A transactions, a target’s cybersecurity mechanisms have become an important part of the due diligence consideration. Indeed, it is important to have a firm grasp on the nature and extent of a target’s cybersecurity vulnerabilities, the likelihood of a breach, and the procedure in place to remedy a breach, if necessary. These considerations have the power to significantly alter the value of a transaction, or even derail it entirely.

With the introduction of EU’s General Data Protection RegulationContinue Reading

Canadian M&A Q3 2019 Review: Canadian M&A activity remains strong despite a slight decline in transaction volume

Crosbie & Company’s “Crosbie & Company Canadian Mergers & Acquisitions Report for Q3 2019” (the Report) reviews the minor slowdown in Canadian M&A activity in Q3 2019 following a record-breaking second quarter. While deal activity declined slightly in Q3 (776 announced transactions compared to 886 in Q2), the Canadian M&A market remained robust, posting its eleventh straight quarter (dating back to Q1 2017) with at least 700 transactions.

Highlights of the Report

  • Slight decline in transaction volume: 776 transactions were announced during Q3 2019 compared to 886 in Q2 2019, representing a 12.4% decrease from the previous quarter.
  • Non-mega
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CANADA’S COMPETITION BUREAU IS KEEPING AN EYE ON SMALL M&A DEALS

The Competition Bureau (the “Bureau”) is required to review certain merger transactions that exceed various financial thresholds, based on the size of the business being acquired and the combined size of the buyer, the target business, and their affiliates. The notification thresholds under the Competition Act (the “Act”) are discussed in more detail here. The Bureau reviews transactions that exceed these thresholds (“notifiable transactions”) to assess the potential competitive effects of the deal prior to its completion, and if the Bureau concludes that a transaction is likely to substantially lessen or prevent competition, they may seek a remedy (such … Continue Reading

Emerging Trends in Information Technology (IT) Mergers and Acquisitions

Canada’s burgeoning information technology (IT) sector is a standout in the Canadian mergers and acquisitions landscape. A recent report by Duff & Phelps illustrates that in the first half of 2019, IT was the third most active deal-making sector in Canada with over 104 closed transactions. Against this backdrop, three trends emerge:

  • ‘Buying into’ privacy or cybersecurity risk. Buyers are becoming increasingly aware of the importance of conducting rigorous due diligence on a target company’s privacy and cybersecurity systems and practices. Marriott’s data breach in 2018, where about 383 million guest records globally were exposed to cybercriminals, highlights this.
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A no-shop provision can be a buyer’s best friend, while exceptions may be the target’s best friend

Deal protections are an important aspect of M&A transactions. Buyers will typically negotiate with the target of the transaction to include all kinds of deal protections mechanisms, including no-shop provisions, matching rights, and break fees payable to the buyer. No-shop provisions in particular restrict the ability of the target board to solicit alternative proposals (including negotiations with third parties) and recommend alternative transactions to shareholders. Receipt of an unsolicited proposal may trigger a notice requirement. However, no-shop provisions can be limited in scope. Three common and interrelated “exceptions” to no-shop provisions are fiduciary out, go-shop, and window-shop provisions. While the … Continue Reading

Investor uncertainty will continue to impact Canadian M&A momentum

Deal count reached a seven-year high in Canada last year, but there has been a loss of momentum in the first half of 2019. On-going trade conflicts and concern over a possible market correction have generated greater economic uncertainty, and the investment outlook for the second half of the year continues to be clouded by these factors.

Rising valuations have been partly attributed to favourable debt conditions. With stimulus measures like the central bank holding interest rates low, the financial environment has been conducive to growth in Canada – so why are some investors dubious? For one, the … Continue Reading

Narwhals, unicorns and profits – Canadian tech start-ups are on the rise

Unicorns and narwhals – what business do these creatures have in boardrooms and on stock exchanges?

“Unicorn” and “narwhal” are industry terms used to describe certain private start-up tech companies. “Unicorns” are start-ups valued by investors at $1B or more, a rare and substantial feat that has earned them their mythical nickname. “Narwhals” sit a stage below, vying for graduation to unicorn status.

The Canadian Unicorn Pipeline

The Toronto-based Impact Centre recently posted its 2019 Narwhal List (the List), which identifies nascent Canadian companies that may evolve into unicorns, as well as the financial avenues that can facilitate such … Continue Reading

Brewery M&A in Canada

The brewing industry is one of Canada’s oldest, and has undergone substantive transformations in recent decades. After a period of consolidation that culminated in the mid-1980s, only ten Canadian breweries remained, of which three controlled more than 95% of the market. As a result of further worldwide M&A activity, the industry is now dominated by three major multinational players. These control 90% of all Canadian retail sales, and account for more than 70% of industry revenue in 2018.

Although the industry has enjoyed steady growth in recent years and continues to have a positive outlook, much of this growth can … Continue Reading

Canadian M&A market still thought to be strong despite recent cut backs

Despite some cut backs in M&A activity expected over the next 12 months, the results reported in Ernst & Young’s (E&Y) 19th edition of the Global Capital Confidence Barometer (the “Report”) make clear that Canadian executives remain optimistic about Canadian and global M&A markets. Canadian executives are traditionally thought to be very bullish on the Canadian and global economy, and it is suspected that the decline in deals since the last Report is a temporary and strategic step back for companies to “digest recent acquisitions and assess the changing global geopolitical landscape.” The current state of … Continue Reading

Q3 review: global M&A volume dropping, despite record highs

Thomson Reuters recently released a report on global mergers and acquisitions in the first nine months of 2018. According to the report, global M&A volume fell 32% in Q3 2018 compared to Q2 2018. The number of deals – 35,543 – in the first nine months of 2018 dropped 9% compared to the same period of 2017. Overall, however, global M&A activity has remained strong in 2018: in the first nine months of 2018, M&A activity reached a new record of nearly US$3.3 trillion. This represents a 37% increase compared to the same period of 2017.

Increase in mega deals

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Foreign investment laws and increased scrutiny of M&A transactions

2018 is on pace to be a year with one of the highest total values of blocked or cancelled M&A deals in the past two decades. While this data, which was compiled by Thomson Reuters and reported by the Financial Times, is based on public M&A transactions, the reasons and insights behind it can nonetheless be applied to the private M&A context.

One of the main ways that deals have been blocked is through foreign investment laws. These laws take different forms in different countries but examples include the Investment Canada Act or the Committee on Foreign Investment in … Continue Reading

Brace yourselves, a market crash is coming – or is it?

Global M&A activity has been off to a record start this year. The overall volume has reached nearly $2 trillion as of May 21. While some may view this increasing trend with optimism, certain investors are skeptical of its longevity.

It has not gone unnoticed that the last couple of times global M&A volume reached similar levels was in 2000 and 2007 – periods where the market cycle peaked and was followed by a crash shortly thereafter. Business Insider recently noted a consistent factor between these periods is the “overexuberance being exhibited by investors.” The market activity experienced in the … Continue Reading

The Canadian hotel space: ripe for investment

The outlook for the Canadian Hotel segment is looking ripe for investment according to a recently released report from the CBRE. The CBRE Canada’s 2018 Hotels Outlook Report showed that there was strong operational performance which is expected to continue in this year.

The report indicated that hotel-investment volume reached $3.4 billion in 2017 and $4.1 billion in 2016. These years were marked by a higher volume of merger and acquisition deals which had not been a trend in this industry for quite some time. The healthy state of Canada’s hospitality segment is positively influenced by low-interest rates, lower … Continue Reading

Canadian M&A: a look back 2017 and a glimpse into 2018

A retrospective look at 2017

In Canada, 2017 had the highest number of mergers and acquisitions (M&A) deals in the past five years. There were a total number of 2,274 deals carried out in 2017, compared to 1,956 in 2016. The number of “mega deals”, however, did not see an increase in 2017. “Mega deals” are categorized as deals that have a value of US $5 billion or more. The number of these types of transactions went down from seven in 2016, to two in 2017.

For 2017, PwC noted the following three common M&A trends:

1) Increased

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Signs of optimism for mining, oil-and-gas M&A activity in 2018

Overall merger and acquisition deal value involving Canadian companies totalled $216.3 billion in 2017, which was approximately 14% lower than the $251.88 billion seen in 2016, which was a decade-high level. The fall in overall value was primarily caused by a 25% decline in energy deals, according to a report in Bloomberg, which resulted in the first year-over-year decline in total deal value since 2012-2013. Despite this decline, 2017 stands as one only five years since 1995 when deal value exceeded $200 billion, according to a report in the Wall Street Journal.

Outward bound M&A activity was down … Continue Reading

M&A outlook 2018: find out more

Over the last 18 months there has been substantial global, geopolitical uncertainty, including the run-up to, and the eventual election of President Trump in the US presidential elections, the fall-out from the UK’s “Brexit” referendum, the elections across Europe and the North Korean crisis in Asia. These events have had global implications but somewhat surprisingly global M&A has, on the whole, withstood these turbulent times.

Norton Rose Fulbright’s corporate practice has published an article on global M&A trends and forecasts. Please check it out!

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