Tag archives: M&A

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

5G technology driving M&A activity in the telecommunications sector

The much anticipated rollout of fifth-generation wireless (“5G”) technology and changing consumer habits are expected to drive M&A transactions in the telecommunications sector over the next year. According to EY’s May 2019 Global Capital Confidence Barometer (the “EY Report”) 55% of telecommunications executives expect to actively pursue acquisitions in the next year, a significant increase from the long-term average of 45% for the telecommunications sector.

As consumption patterns for video and gaming continue to change telecommunications executives are anticipating the impact that future 5G speeds and capacity will have on adjacent industries like mobile streaming services … 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

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 … Continue Reading

A-I Captain! Know the legal risks of buying an AI company… or go down with the ship

On February 21, 2019, Blackberry completed its acquisition of Cylance, a privately-held artificial intelligence (AI) and cybersecurity company. Acquisitions of AI companies like Cylance are becoming increasingly common as businesses seek to realize the opportunities in offering much-improved products or services to their customers. Canada, in particular, has become a hotspot for activity in the AI industry.

Acquiring an AI company is not always smooth sailing. There are common risks that buyers must be aware of prior to embarking on an acquisition.

Know where the data comes from

An AI derives its value from data sets used … Continue Reading

Managing information technology risk to improve M&A outcomes

An organization’s technology systems are an integral part of its business. Integrated into all aspects of its operations, the possible failure of these systems has been the top concern in Allianz Group’s survey of over 1,900 risk management experts for six straight years. High profile incidents such as the Visa service outage, where a systems error shut down all Visa transactions in the UK and Europe demonstrate that even large, sophisticated companies are at risk.

Given the considerable risk and consequences of technology errors, it is surprising that information technology (IT) systems are often an overlooked element in mergers … Continue Reading

Vendor take-backs: a useful tool for financing M&A transactions

A vendor take-back (VTB) (or “vendor financing”) is a potential supplementary method of financing an acquisition transaction. It is often documented by a vendor take back note or promissory note. A VTB may be used as a type of non-consideration in conjunction with other forms of financing in order to facilitate an acquisition.

In a VTB financing arrangement, the purchaser satisfies a portion of the purchase price through financing, typically by issuing a note to the vendor. Under this arrangement, the vendor effectively loans a portion of the purchase price to the purchaser. VTBs can be used by … 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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Speed matters: four tactical approaches to speeding up divestitures and maximizing value

With pressure to increase shareholder value from low productivity assets, many companies are exploring the idea of divestures. Yet, a recent article by McKinsey & Company suggests that only 29 percent of divestitures achieve win-win scenarios, whereby both the parent company and divested business achieve excess total returns to shareholders (TRS) following the separation. What stands out about these companies? Speed appears to be the source of their success.

According to a study of major divestitures between 1992 and 2017 by McKinsey, separations completed within 12 months of announcement achieved higher excess TRS than those that took longer. A speedy … Continue Reading

Pension plan considerations in the M&A context

In any acquisition, whether for shares or assets, employee benefits and obligations must be taken into account. One of the potentially most onerous obligations includes the provision of pension benefits to employees – this makes it all the more important for companies contemplating acquisitions to consider potential employee pension plan implications.

In a share purchase context, the buyer will typically assume all liabilities of the target company, and if the target company has a pension plan in place, this will often be included. However, if there are significant pension fund deficits, this may be one reason an asset purchase agreement … Continue Reading

Increased M&A activity predicted as insurance industry evolves

The insurance industry is an evolving landscape. The emergence of new technologies and increased competition has created pressure to innovate while casting doubt on the viability of focusing on strategies emphasizing organic growth. These factors may drive an increase in M&A activity in the insurance industry, according to a report from KPMG International.

The report, which is based on interviews with insurance executives from around the world, concludes that the majority of insurance companies are seeking M&A opportunities in an effort to deploy their capital in pursuit of transformative growth. However, these companies will likely require significant support from M&A … Continue Reading

Shareholder responsibility over auditor tenure

Concerns about the term or length of auditor tenure have returned to relevance following the recent fall of industry giants, providing good reason for Canadian companies to reconsider their audit and governance practices.

In 2016, the European Union implemented mandatory rotations of audit firms for public companies, which was similarly considered, though rejected, in the United States. While Canada has not implemented mandatory auditor rotation, the annual appointment of auditors is an area in which shareholders have considerable power and responsibility, particularly following transactions that substantially change the nature and structure of a company.

Each year, business corporations legislation requires … Continue Reading

Will Canada soon be a global leader in the cannabis space?

Recently, the Cannabis Act was granted Royal Assent, resulting in the official passing of the legislation for legalizing cannabis in Canada. The Act is expected to be in force as of October 17, 2018.

The Canadian government’s decision to legalize recreational marijuana may significantly impact capital markets and M&A deals. The decision to legalize recreational marijuana at the federal level is unique to Canada, compared to other jurisdictions like the U.S. where it remains illegal federally and is currently regulated by states (such as Colorado, California and Washington).

While the state model in the U.S. has experienced some early success, … Continue Reading

Evaluating the risks of open source software in M&A transactions

Open source software (OSS) has emerged as a significant market disruptor in recent years. OSS serves as an alternative to commercial software licensing wherein the licensee does not need to pay for the license. This tends to make it particularly attractive to start-ups attempting to keep their costs down. However, the free use of the OSS comes with some additional considerations which need to be managed before an acquirer purchases a company making extensive use of OSS.

Some analysts have noted that, in the acquisition context, OSS can present a number of challenges, including security risks and compliance. … Continue Reading

Competition Bureau opens consultation on revised immunity and leniency programs

Last month, the Competition Bureau issued its revised immunity and leniency programs for public consultation (open until June 29), an important development as it represents the culmination of a process that began in 2015.

An initial draft of the immunity program, published last fall, was subject to public consultation and the Bureau made further revisions which aim, among other things, to clarify the Bureau’s approach.

Background

The immunity and leniency programs’ purpose is to uncover and stop criminal anti-competitive activity prohibited by the Competition Act. In fact, the programs have been described as one of the Bureau’s best tools … 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

Liability caps around the world: a global comparison

It is common around the world for representations and warranties in private M&A transactions to survive for an agreed upon period of time after closing. During this survival period, the seller is faced with the risk that the purchaser may bring an action against it for breach of a representation or warranty. There are a number of ways sellers can mitigate this risk, including negotiating a cap on their maximum liability under the purchase and sale agreement. What is considered “market standard” in terms of the use and quantum of these liability caps differs in jurisdictions around the world.

In … Continue Reading

M&A activity in Canada’s upstream oil and gas sector remains slow in 2018

Following our update during the last quarter of 2016, M&A activity in Canada’s upstream oil and gas sector continued to decline in 2017 and has remained slow during the first quarter of 2018. Globally, there was a strong start to 2017 followed by a significant decline, in terms of both deal count and overall deal value, during the balance of 2017, with a notable increase in deal activity during the first quarter of 2018.

 According to Deloitte’s Oil & Gas Mergers and Acquisitions Report–Yearend 2017, after the increase in deal spend in Q4 2016 and Q1 2017, the rest … Continue Reading

A healthy dose of deal-making: M&A trends in the US and Canadian healthcare sector

In the first quarter of 2018, M&A activity across the world hit a 17 year record high according to Mergermarket’s Q1 2018 Global M&A Report. This is an 18 percent increase in value compared to the first quarter of 2017. This increase was affected by the surge in deal-making seen at the end of 2017 which carried over into 2018 as the US experienced mega US healthcare deals. In fact, US M&A activity during Q1 2018 was reported to represent 44.2% of the total global share. According to data from Bloomberg, the healthcare sector has already reported $156 billion … Continue Reading

What considerations should be made when buying a franchise business?

The acquisition of a franchise business from a franchisor carries with it risks unique to the nature of the business. The aim of this post is to shed light on some of those risks and to highlight mechanisms, the existence of which can comfort a potential buyer that those risks have been mitigated.

Risk of non-compliance with applicable franchise legislation

The provinces of Ontario, Alberta, British Columbia, Manitoba, New Brunswick and Prince Edward Island each have their own franchise regulatory regime. A staple of the franchise regulatory regime is the requirement that, subject to certain exemptions, prospective franchisees receive a … Continue Reading

Competition Act Merger Filing Fees Increases to $72,000

Effective May 1, 2018, merging parties will need to dig deeper to cover the fee that must be paid when filing a pre-merger notification or seeking an advance ruling certificate under the Competition Act. The fee is jumping from $50,000 to $72,000.

In justifying the increase, the Competition Bureau argues that the fee has not increased since 2003, and had the fee been adjusted annual for inflation, it would currently be approximately $65,500. They also suggested that additional funds are required given the increase in the number of transactions considered “complex” and the considerable resources that are required to … Continue Reading

M&A or joint venture: key considerations for choosing your path to growth

Choosing to grow your business through an M&A transaction or through a strategic partnership or joint venture can be a difficult decision to make. M&A transactions and partnerships can both drive growth and bring access to new markets or product and service offerings, but they also come with unique challenges. While an acquisition allows the acquirer to gain control over the target, M&A transactions can be costly and the acquirer not only obtains the target’s business but also its liabilities, which can be significant.

Strategic partnerships, on the other hand, do not provide the same degree of control but may … Continue Reading

Look to the future: a tip for analyzing corporate culture in an era of evolving shareholder activism

2018 promises to be a year in which corporate culture will likely become an even more important focal point for investors and activists.

There’s no denying that social media has drastically altered the dynamic for public companies. Today, shareholders are increasingly calling upon corporations to take public stances on various social (and sometimes political) issues, some of which may be wholly unrelated to the corporation’s purpose. In a climate where shareholders are increasingly judging corporations based on non-traditional criteria, public companies can no longer spout platitudes about corporate governance and social values without risking being singled out. More than ever, … Continue Reading

Enforcement of restrictive covenants in commercial transactions

Restrictive covenants are often a key mechanism by way of which the buyer of a business is able to protect the value of their purchase. Indeed, in a 2017 review of legal trends in Canadian private M&A, Thomson Reuters has reported that non-competition covenants were found in 52% of the closing conditions of share acquisition transactions.

While such covenants are common, their enforcement has remained an ongoing concern due to the strict reasonableness requirements imposed by the Supreme Court of Canada in JG Collins Insurance Agencies Ltd. v Elsley, [1978] 2 SCR 916 in order to balance the parties’ … Continue Reading

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