Tag archives: due diligence

Evaluating the Legal Risks of Data Assets in M&A

Data is an essential asset for many businesses, and one that is increasingly acquired through M&A transactions. Identifying and assessing the particular legal challenges of data assets is crucial for acquirers to mitigate the risks associated with these assets and unlock their full value. While issues will depend on the particulars of each transaction, the following is a high-level overview of significant considerations.

What rights in the data assets is the acquiring company receiving?

Evaluating a target company’s rights to their data assets is often more complex and uncertain than for more tangible assets. Such rights are often limited by … Continue Reading

Examining data analytics in M&A

The M&A world continues to evolve as transactions are becoming more diverse and complex. Timelines are getting shorter and acquirors have less time to assess their targets but more pressure to justify their acquisitions. Acquirors must simplify the process of acquiring a target, while simultaneously improving the accuracy of their predictions about the acquisition’s profitability. Could data analytics be one of the solutions?

More data is being created today than ever before. Generally, there are two kinds of data relevant to M&A transactions. The first is data created by companies spontaneously (e.g. social media chatter, CRM data, user … Continue Reading

Both sides of the same coin? Examining the rise of sponsor-to-sponsor deals

As competition and asset multiples increase, private equity (“PE”) firms must find new ways to put their money to work. One way to create new value is through a sponsor-to-sponsor deal.

Sponsor-to-sponsor deals involve PE firms on both sides of a transaction – buy side and sell side. Due to their high cost and complexity, there is a general view that sponsor-to-sponsor deals tend to be inefficient. However, a recent report by Bain & Company’s Annual Global Private Equity Report 2019 (Report) found that sponsor-to-sponsor deals are on the rise, which implicitly suggests that these deals may not … Continue Reading

Avoiding independent contractor liability in M&A

The distinction between employees and independent contractors is significant as it pertains to workers’ legal entitlements. Employees have an exclusive working relationship with an employer, which engages rights and obligations under applicable employment legislation and the common law. By contrast, independent contractor agreements are entered into by legal and contractual equals. As a result, independent contractors are not afforded employment law protections.

The misclassification of employees as independent contractors continues to attract considerable legal action and media attention. Recently, Ontario has seen a rise in class action lawsuits involving claimants alleging to have been misclassified by their purported employers. … Continue Reading

AI as a solution for cybersecurity problems in M&A deals

Artificial Intelligence (AI) has immense potential as a solution for cybersecurity vulnerabilities in M&A deals. Generally, M&A deals generate value and as such, understanding vulnerabilities on the acquirer and target sides is important for completion of the transaction. With the common usage of networks and servers to store high volumes of data by corporations, vetting for cybersecurity attacks has become a priority in the M&A due diligence process. In a recent study, IBM reported that the global average cost of a data breach has risen 6.4 percent over a 12 month period to $3.86 million. The average … Continue Reading

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” … Continue Reading

The role of environmental, social and governance (ESG) factors in M&A

In private equity, environmental, social and governance (ESG) factors are often overlooked and undervalued. Due diligence is usually more focused on the financial and quantitative aspects of the target. However, in recent years, ESG has proven to be a powerful underlying factor for business successes and failures. As evidence by the #MeToo movement, and the various human resource scandals that have made headlines in recent months, an unhealthy corporate culture can have serious consequences for even the biggest of enterprises. A study that looked at 231 mergers and acquisitions between 2001 and 2016 found that ESG compatible deals performed better … Continue Reading

Holding an oil and gas licence: a privilege, not a right

Say you are about to buy, sell, or invest in an Alberta oil and gas company. You are conducting your due diligence, negotiating the transaction documents, pursuing any necessary approvals and are looking forward to closing. Before you can proceed, get ready to add another item to your closing checklist. The Alberta Energy Regulator (AER) has recently made some changes concerning oil and gas licences and approvals that you will need to consider.

In December 2017, the AER re-issued Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. The revised directive tightens the Continue Reading

Streamlining due diligence 101 – establish your virtual data room early

Whether you are gearing up for an acquisition or are in the early rounds of fundraising, one of the most valuable tools is often the most overlooked: the use of a Virtual Data Room (VDR). VDRs are not uncommon (gone are the days of physical data rooms) – rather, the planning of a VDR tends to be an after-thought. The pressure to create one from scratch, with a potential transaction looming, can be daunting.

Regardless, whether dealing with a potential buyer or investor, a common expectation among the parties is to see the same types of documents when … Continue Reading

Reviewing the ABA 2017 Private Target M&A Deal Points Study: new RWI takeaways

For the first time, the American Bar Association’s Private Target Mergers and Acquisitions Deal Points Study (the Study) includes data points on the use of representation and warranties insurance in transactions. The Study analyses publicly available purchase agreements for transactions for which purchase agreements were executed and/or completed in 2016 and the first half of 2017 that involved private targets being acquired by public companies in the US (the Agreements).

Representations and warranties insurance (RWI) is a tool increasingly used by buyers and sellers in the context of mergers and acquisitions. As previously discussed on this … Continue Reading

Better, faster, stronger: revamping the M&A due diligence process with Artificial Intelligence platforms

Voluminous information in M&A transactions

M&A transactions can be time-intensive, often involving contract discovery and analysis, due diligence, data room preparation, verification of representations and warranties, privacy issues and multijurisdictional privacy legislation and intellectual property protection, among other important aspects. As deals become larger in value and scope, the review and analysis of the foregoing information becomes both voluminous and jurisdictionally dispersed. The international nature of companies and deals often result in contracts that are drafted in languages other than those commonly spoken by the lawyers on a file. To maximize efficiency, minimize errors and drive down costs, law firms … Continue Reading

Hacking your way through cyber due diligence

Last year saw an increase in the frequency of data breaches and this trend is unlikely to disappear in 2018. We previously reported on the importance of cybersecurity in the M&A due diligence process. Conducting due diligence of a target’s cybersecurity procedures has become even more crucial in light of Canada’s new notification requirements. These requirements, regulated by the Personal Information Protection and Electronic Documents Act (PIPEDA), are based on amendments made to PIPEDA in 2015 as well as a regulation proposed in 2017 called Breach of Security Safeguards Regulations (Regulations). The Regulations will impose new … Continue Reading

Sell-side due diligence: knowing your buyer

M&A deals aren’t easy to close. As we previously reported, due diligence typically increases the likelihood of a deal closing. Buyers often conduct extensive diligence: they analyze the financial documents, projections, contracts and other relevant information pertaining to the target company. However, due diligence completed by the seller, alternatively known as “sell-side” due diligence, is also an important step towards successfully closing a transaction.

Sell-side due diligence often entails the seller providing information on the company’s projections, its competitors and relevant current economic factors.  In turn, ensuring that the information being relayed to the buyer is accurate will have … Continue Reading

Due diligence and risk mitigation in cross-border deals

As discussed in an earlier post, cross-border M&A deals are on the rise. Most businesses today are looking to unlock value from technology, emerging markets are flourishing and pursuing global investment opportunities and barriers to information have diminished. These are all factors giving rise to cross-border deals.

Transaction risk in cross-border deals

Cross-border deals come with many advantages, including the ability to expedite time to market, to scale and enhance brand recognition and to mitigate competition. However, cross-border deals are also accompanied by their unique set of disadvantages, making it all the more important to manage transactional risks.

Parties’ … Continue Reading

In the new world of protectionism, where will M&A stand in Canada?

Canada’s stance on protectionism

Repeated headlines in the past year related to President Trump and his “America First” strategy and the struggles faced by British Prime Minister Theresa May as she leads Britain post-Brexit have convinced many that protectionism now pervades the new world order. Not only are restrictions on physical borders imposed, the flow of investments and trade are inevitable topics being negotiated vehemently by world leaders.

Despite the protectionist rhetoric expressed throughout the globe, Bank of Canada Governor Stephen Poloz argued that “committing to openness has always been the right choice” because “[Canada’s] history shows that it takes … Continue Reading

Due diligence defence for distribution of securities in breach of securities law

In furtherance of a proposed merger or acquisition, it is common place for an issuer to complete a concurrent private placement in order to, among other things, fund its working capital and current operations, complete the transaction or satisfy regulatory or administrative requirements post-transaction i.e., exchange listing requirements upon completion of a reverse-take over.

Notwithstanding such reason, it is absolutely necessary to the future of the issuer, its directors and officers and any agents, finders, or promoters, to appreciate and understand their responsibilities upon conducting a private placement, as illustrated in the recent British Columbia Securities Commission (CommissionContinue Reading

Customers and sales: the truth in the numbers

Deal Law Wire - Norton Rose FulbrightMergers and acquisitions typically involves a considerable amount of legal, financial tax and relevant industry due diligence by a purchaser. Consider a transaction where a buyer purchases a private company that sells products or services. The buyer would want to know what it is buying and what obligations it is assuming, but also data regarding the sales potential of the company. This is particularly relevant if the company’s sales record is waning.

Due diligence regarding customer lists and sales data is incredibly important. A purchaser must understand the company’s customer base, including the level of concentration of the largest customers … Continue Reading

The importance of cybersecurity in the M&A due diligence process

Deal Law Wire - Norton Rose FulbrightGiven the increasing frequency of cybercrime and online security breaches, cybersecurity has moved to the forefront of importance when evaluating M&A prospects. Acquirors want to ensure that they are receiving the full value of what they are purchasing and protect themselves against any possible data breaches that can result in reputational, legal, or financial harm.

A report by the New York Stock Exchange Governance Services surveyed 276 directors and officers of public companies to determine how the growing presence of cybersecurity threats has had an impact on their M&A due diligence process. The report indicates that:

  • 66% of respondents include
Continue Reading

Incorporating social media into the due diligence process

social_680x2202017: the year of social media fails. Over the last six months, an international air carrier’s stock plummeted following a viral video of security forcefully removing a passenger from a plane. Then, Twitter was used to publicly assail a soda pop company for its lack of judgment in releasing a commercial depicting a celebrity subduing a crowd of protestors with a can of pop.

Before committing to a transaction, a prudent buyer will want to know any and all potential risks associated with the target. While social media can play a positive role in a company’s business strategy, it, evidently, … Continue Reading

Incoming legislation implements common reporting standards

On July 1, amendments to the Income Tax Act (Canada) implementing international common reporting standards (CRS) will come into force. The CRS regime is intended to facilitate the exchange of taxpayer information between governments. Financial institutions will be required to report financial information about individuals and entities not resident in Canada[1] to the Canada Revenue Agency (CRA), which will in turn share the information with the tax authorities in the individual or entity’s jurisdiction of residence.

Due diligence obligations

Under CRS, financial institutions in Canada will be required to conduct due diligence on all financial … Continue Reading

How deal team size can help produce post-transaction synergies

Deal Law Wire - Norton Rose FulbrightRegardless of whether the parties are public or private, the potential synergies that can be gained from an M&A transaction are among the most common reasons cited by acquirers when justifying their proposed transactions to stakeholders. However, without careful planning and execution, these synergies often fail to have the impact on the bottom line that management expects when deals are first conceived. A recent article by McKinsey & Company suggests that by broadening their deal teams, acquirers may be better equipped to realize these post-transaction synergies.

Problems with lean transaction teams

Typically, executives tend to keep deal teams as lean … Continue Reading

Thinking of your target’s acquisition: is your cybersecurity risk assessment sufficient?

security-680x220In 2015, we have seen several important cybersecurity breaches in the industry. Some of them have been extensively mediatized while others remained less known by the general public. Recently, the online dating website Ashley Madison was hacked and the identity of millions of users revealed all around the world. Even more recently, we learned that over 500 million users’ Yahoo accounts had been hacked in 2014 and this news came out shortly after the acquisition of Yahoo by telecom giant Verizon. Can these attacks jeopardize your upcoming transaction? They absolutely can. As a matter of fact, Verizon asked for a … Continue Reading

Deal maker or deal breaker? Information security during M&A

The Ontario Securities Commission (OSC) recently published its Statement of Priorities for the Financial Year to End March 31, 2017 (the Statement). The Statement unveils a new area which the OSC intends to focus its key resources and actions on – cyber resilience. For many, this does not come as a surprise, particularly given the high-profile cyber-attacks on organizations ranging from Ashley Madison to J.P. Morgan. It is now well-recognized that in a market where businesses are exponentially increasing their dependency upon technology, the need to understand and mitigate cyber-security risks is proliferated.

The Statement should serve … Continue Reading

The auction process in M&A

In the context of M&A transactions, an auction is a process by which multiple buyers simultaneously bid to acquire a target. The term “controlled auction” refers to an auction where there is a carefully sequenced and monitored process involving a selected group of buyers. The main goal of a controlled auction is to realize the best possible price for the target and the most favourable transaction terms for the seller. Unlike in the United States, Canadian law does not require the board of directors of a seller to focus on maximizing shareholder value in a change of control transaction. Instead, … Continue Reading

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