Tag archives: M&A

The (Artificial) Intelligent Investor

Investor advice platforms, at both the retail and institutional level, have evolved in recent years – from the use of classic literature to expanded services offered by brick-and-mortar firms. However, with the growth of app-induced innovation, various robo-advising platforms have taken the lead in providing investors with seamless, efficient, and cost-effective means of advice.

We previously addressed how M&A transactions may occur with fintech companies and traditional banks. However, in this post, we will explore how Canada’s fintech sectors have expanded in recent years and key considerations for wealth management firms looking to acquire or sell certain platforms.

What is

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Full Speed Ahead: Post-Pandemic Trends in M&A

After a nine-year low in 2020, M&A activity in Canada made a strong rebound in the first quarter of 2021. As reported by BNN Bloomberg, in the first three months of 2021, Canadian companies were involved in 1,168 deals that together totalled US $115 billion in value, dwarfing the US $44.3 billion in deal value during the same period in 2020. The Financial Post reports that a similar phenomenon is occurring globally, with the number of deals up 6% and the total value of pending and completed deals up 93% as compared to the first quarter of 2020.

With … Continue Reading

Funding M&A Deals with Bitcoin

As Bitcoin gains increasing traction since its inception 11 years ago, we begin to question whether it will slowly replace traditional dollar funding in M&A deals. Whether Bitcoin will be used to fund large M&A deals will likely depend on its ability to stabilize in value.

One of the most common concerns of using Bitcoin as a source of deal funding is its propensity to fluctuate in value. Over the past five years, Bitcoin prices have fluctuated from CAD $500 to CAD $72,000, sometimes even dropping as much as 50% over the course of a single day. This price … Continue Reading

Transforming Adversity into Opportunity: The Need for New Technologies Fuels Insurance M&A

The COVID-19 pandemic has changed the way in which we interact with the world. From working, to shopping, to socializing, most aspects of our daily lives have moved to the online world. Consumers now expect effective online platforms for all goods and services, and businesses have been forced to adapt quickly.

The need for robust online technologies drove a number of large M&A transactions for enterprise technologies in 2020. While insurance companies have struggled throughout the pandemic, with share prices collapsing due to a rise in insolvencies, new technologies have the potential to transform the industry, driving a flurry of … Continue Reading

Visiting the Doctor in a Virtual World Provides Business Opportunities in Telehealth

It is no secret that during 2020 and into 2021 the COVID-19 pandemic has created massive disruptions for a variety of industries. One such example is the movement of health care services online in order to adhere to social distancing guidelines. A wide variety of technology and applications to facilitate this, referred to as telehealth or telemedicine technology, are gaining momentum. This technological shift in health care has resulted in a boom of the telehealth industry and offers the possibility of sustainable growth opportunities for companies in 2021 and farther into the future.

What is telehealth technology?

Market analysts explainContinue Reading

Earn-outs and reverse earn-outs

In May, we wrote about the increased focus on earn-out provisions during the pandemic as a method to mitigate the risk of a target’s post-closing under-performance and to bridge any valuation gap between the purchaser and seller. More recently, we discussed post-closing balance sheet adjustments as a separate tool to address the same risk. In this article, we will focus on (i) reverse earn-out provisions and (ii) a review of the use of earn-outs in 2020 M&A deals.

Earn-out vs. Reverse Earn-out

As described in more detail in our May post, a ‘classic earn-out’ refers to a post-closing increase … Continue Reading

Lower 2021 thresholds announced for merger reviews under Competition Act and Investment Canada Act

The threshold for certain pre-closing net benefit reviews under the Investment Canada Act (ICA) and the threshold for a pre-closing merger notification under the Competition Act have now both been released for 2021. Thresholds under both statutes decreased slightly, meaning more transactions may be reviewable or notifiable, respectively, than in 2020.

Competition Act

Canada uses a two-part test for determining whether a pre-merger notification is necessary. The two-part test is based on the size of the parties and the size of the transaction. The transaction size component can be adjusted annually for inflation. Under the size of the parties test, … Continue Reading

“To the Moon”: The Rise of the Retail Investor and What this Means for Dealmakers

Retail investors are becoming an increasingly significant source of capital on public markets, and dealmakers should be aware of how this development can impact M&A transactions and the decision to go public. After the latest garnering of widespread attention in the news, the retail investment community has been estimated to constitute as much as 25% of total stock market activity. This increase can be at least partly attributed to the development of 0% commission trading mobile applications as well as the extra time retail investors have to develop their own personal trading strategies due to COVID-19 social restrictions. Not … Continue Reading

A Slow Burn: The Cannabis Sector May be Ready for Market Consolidation

The first half of 2020 saw a significant decline in M&A activity as capital markets were impacted by the COVID-19 pandemic, but the second half of the year saw a surge in M&A activity that is expected to continue into 2021. One industry that may be particularly well primed for M&A activity in 2021 is the cannabis industry, where market consolidation is already underway.

Predictions of market consolidation in the cannabis industry are hardly novel. Even prior to the legalization of cannabis in Canada, research by Ernst & Young indicated that industry executives believed that consolidation was inevitable and would … Continue Reading

Corporate Divorce: An Analysis of Divestments and Lessons to Carry Forward

In the midst of these unprecedented times, many companies are looking to mergers and acquisitions to realize new growth opportunities and diversify; however, before heading down this road, one question needs to be asked: is it a marriage built to last or is it doomed from the start? A recent paper, which examined 1,365 M&A deals occurring between 1983 and 2010, found that 46% eventually resulted in divestment or “divorce”. Moreover, 77% of these corporate divorces stemmed from M&A failures. The authors identify post-acquisition industry shocks and cultural dissimilarities as the primary causes behind corporate divorce, but suggest that … Continue Reading

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

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

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

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

The Smart Choice: A Predictive View in Revamping M&A Contracts

The current pandemic presents a unique opportunity to revitalize traditional M&A process and provisions. While we have previously addressed how traditional M&A provisions are impacted by the pandemic, this blog post will explore the key opportunity industries and corporations alike have in improving contractual processes. Specifically, through the use of blockchain technology and smart contracts.

Smart Contract 101

First proposed thirty years ago by computer scientist Nick Szabo who coined the term, smart contracts are drafted using programming languages and software and can be made legally enforceable and binding for all parties involved.  In recent years, smart contracts have been … Continue Reading

M&A Opportunities in the COVID-19 Digital Transformation

While the COVID-19 pandemic initially had a general chilling effect on merger and acquisition (“M&A”) activity, we have seen an increase in M&A activity recently, particularly as industries rapidly adapt to the new environment and consider opportunities. Both consumer preferences and business models have been forced to change quickly due to the circumstances of the pandemic. This period of transformation provides opportunity for those investors and businesses who are able to efficiently adapt and take advantage of the new trends.

Increased Demand for At-Home Services:

The pandemic has transformed consumer preferences which has created tremendous potential for certain … Continue Reading

Speaking the portability language: How portability clauses are helping debt-laden companies enter into M&A transactions

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

Representations and Warranties Insurance and COVID-19 Considerations

The use of representations and warranties insurance (RWI) has grown dramatically in recent years as buyers (and to a lesser extent, sellers) have increasingly relied on RWI to allocate risks and provide other benefits in M&A transactions. The COVID-19 pandemic and its economic impacts have led to significant uncertainty for buyers, as well as for the RWI insurers underwriting their transactions. However, as we have grown more knowledgeable about the effects of the pandemic, both the M&A market and RWI insurers have adapted to the meet the changing times.

What is RWI

RWI is used by transacting parties … Continue Reading

Determining fair value in appraisal proceedings: the Supreme Court of Canada dismisses application for leave to appeal in Carlock v ExxonMobil Canada Holdings ULC

On August 13, 2020, the Supreme Court of Canada (the SCC) dismissed the application for leave to appeal in the case of Carlock v ExxonMobil Canada Holdings ULC (Carlock), indicating that the negotiated deal price in a transaction between well-informed, sophisticated, arms-length parties that is the result of a vigorous sale process provides strong objective evidence of fair value in appraisal proceedings before Canadian courts. This aligns with the recent U.S. decision in DFC Global Corp. v Muirfield Value Partners, LP, where the Delaware Supreme Court strongly endorsed deal price as often “the best evidence of … Continue Reading

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

Fintech M&A Activity in 2020: The Digital Economy is Here

Paying for Payments

While uncertainty arising from the COVID-19 pandemic has slowed down most deal activity, Fintech, in particular the payments space, is a big exception. Recent analysis from KPMG revealed that UK payment deals in the first quarter of 2020 alone exceeded the total number of deals in 2019. Granted, deal sizes were relatively low value, but the incredible rate highlights how the usual frantic activity in this area has only been propelled by the unique challenges this pandemic has presented, namely the need to switch to cashless and contactless transactions. Canadian Fintech is also poised for more deal … Continue Reading

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