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Category Archives: Contractual Matters

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Williams Companies v. Energy Transfer Equity: Avoid Leaving the Meaning of Effort Provisions to Future Circumstances

Posted in Contractual Matters, Private Transactions, Public M&A, Strategy

Undertaking to use “best efforts”, “commercially reasonable efforts” and variations of such specified levels of effort are frequently provided for in M&A deals. Undertaking to use a specific degree of effort addresses parties’ obligations that are not entirely within their control and indicates that performance and result are not guaranteed or assured. Examples of obligations for which parties typically undertake to use a specified degree of effort include the obtaining of regulatory approvals, financing and third party consents. Although the rationale for undertaking to try to accomplish something is clear, the desire to circumscribe obligations by “best” or “reasonable” efforts … Continue Reading

Thinking of Buying or Selling a Fintech Target? Due Diligence Issues Unique to Fintech M&A

Although many of the same considerations related to the acquisition or sale of any technology company apply, regulatory and compliance considerations are key in the fintech space.

Posted in Canadian Market Entry, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

Fintech M&A activity, in both the Canadian market and globally, is expected to be on the rise over the next few years. In its 2016 Report, FinTech: Prepare for a Wave of M&A, UK-based investment bank FirstCapital, predicts that fintech M&A deal flow will increase “as financial incumbents look to catch up with widespread innovation from new entrants, the internet majors scale up in financial services and the technology/software majors add new technology to deepen their offerings in this sector”.

Like with the acquisition or sale of any technology company, strategic due diligence is a critical component of the … Continue Reading

Hot Off the Press – Canadian Contractual Interpretation Law 3rd Edition

Posted in Contractual Matters

Canadian_Contractual_Interpretation_Law_BookGeoff Hall, senior litigator at McCarthy Tétrault, authors the newly published third edition of Canadian Contractual Interpretation Law. The book clearly sets out the principles governing the interpretation of contracts in Canada, particularly in light of the landmark decisions of the Supreme Court of Canada in Sattva and Bhasin.

These two cases – both of which cited the second edition of Mr. Hall’s book, and were successfully argued by litigators from the firm – transformed contractual interpretation in fundamental ways, firstly by recognizing contractual interpretation as a highly fact-driven exercise and secondly by recognizing an organizing principle … Continue Reading

Canada’s early warning rules get tougher in May

Canadian Securities Administrators adopt enhanced disclosure, retain 10% reporting threshold

Posted in Canadian Market Entry, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

Along with the announcement on February 25, 2016 of final amendments to Canada’s take-over bid regime (see our February 26, 2016 publication, Canada’s New Take-Over Bid Rules Seek to Level the Playing Field, relating to that announcement), the Canadian Securities Administrators (CSA) published the text of final amendments to Canada’s Early Warning Regime (EWR), which will take effect on May 9, 2016.1

Background

The release of the amendments (EWR Amendments) brings to an end a three-year engagement by the CSA with market participants that began in March 2013 with an initial set of EWR proposals (see our March … Continue Reading

Canada’s New Take-Over Bid Rules Seek to Level the Playing Field

The Canadian Securities Administrators confirm the adoption of a harmonized Canadian take-over bid and issuer bid regime (including a 105 day minimum bid period), effective May 9, 2016

Posted in Canadian Market Entry, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

On February 25, 2016, the Canadian Securities Administrators (CSA) published a CSA Notice of Amendments to Take-Over Bid Regime confirming the adoption of a harmonized take-over bid and issuer bid regime for all Canadian jurisdictions (New Bid Regime),1 effective May 9, 2016.2

On February 25, 2016, the CSA also published a CSA Notice of Amendments to Early Warning System, which confirms the adoption of changes to Canada’s early warning reporting (EWR) system. These changes to the EWR system are to come into effect at the same time as the New Bid Regime and will be reflected in … Continue Reading

Rethinking Representation and Warranty Insurance in Canada

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

With special contribution from Robyn Weber, AVP, Private Equity Practice Leader, HUB International

The sale of Representation and Warranty Insurance (“RWI”) policies has soared in recent years. In the United States, between 2012 and 2014, the number of RWI policies issued has doubled every year. Yet Canada has not been as quick to adopt RWI in M&A transactions mainly due to our typically smaller transaction values, making RWI cost prohibitive in many instances.

However, the Canadian market is warming to RWI as the cost of this insurance product has decreased by approximately 50% over the past 5 years. With the … Continue Reading

Canadian Representation and Warranty Insurance FAQ

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

With special contribution from Robyn Weber, AVP, Private Equity Practice Leader, HUB International

In the context of the purchase and sale of a company, when sellers seek to negotiate a “clean exit” and limit exposure to indemnification claims and buyers seek to avoid unknown pre-closing risks, the question increasingly arises: can’t insurance cover these risks?

Canadian M&A participants have been slower than participants in other markets to regularly seek this type of insurance, known as Representation and Warranty Insurance (“RWI”). However, insurers have been quick to offer RWI products and interest is growing. The rationale for purchasing insurance can be … Continue Reading

Cybersecurity and M&A – Part Three: Cyber Insurance

Posted in Contractual Matters, Private Transactions, Public M&A

In the second installment of this series we offered a brief review of cybersecurity provisions and considerations in M&A transaction agreements, and in the first installment of this series we offered a brief review of cybersecurity issues that can arise in the course of M&A transactions and discussed the importance of cybersecurity due diligence by the buyer. This third installment will focus on cyber-insurance and some specific considerations relating to cyber insurance that targets and acquirers should make in the context of M&A transactions.… Continue Reading

Cybersecurity: More than a Byte-Sized Problem in M&A

Part Two: The Transaction Agreement

Posted in Contractual Matters, Private Transactions, Public M&A

In a previous blog entry, we offered a brief review of cybersecurity issues that can arise in the course of M&A transactions and discussed the importance of cybersecurity due diligence by the buyer. This entry will focus on contractual provisions that the buyer can request in the definitive transaction agreement to hedge against any cybersecurity risks it assumes. In particular, this blog post will focus on purchase price adjustments, representations and warranties, and indemnities.… Continue Reading

Cybersecurity: More than a Byte-Sized Problem in M&A

Part One: Due Diligence

Posted in Contractual Matters, Private Transactions, Public M&A

In a previous blog entry, we canvassed Canadian privacy legislation and offered businesses a cursory review of the issues that arise in the due diligence phase of a business transaction. Expanding on that, this entry is the first in a series of three blog entries concerning specific cybersecurity considerations in the M&A context. This entry will focus on cybersecurity due diligence considerations, while the entries that follow will respectively discuss cybersecurity considerations in definitive transaction agreements and cybersecurity insurance.… Continue Reading

Beyond Boxes: Books and Records in the (not so) New Digital Age

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

The recent attention surrounding cyber security is a reminder of how a company’s records are no longer stored in boxes filled with paper files. Although the (not so) new age of electronic data storage has resulted in new ways of doing business that were never before possible, it has also resulted in a host of complexities when considering how, and in some cases what, electronic records will be handed over to the buyer of a business in an M&A transaction. These complexities are compounded when a buyer is only purchasing a portion of a business, the rest of which will … Continue Reading

Doing Business in Canada: Read the latest updates to our popular guide

Posted in Canadian Market Entry, Contractual Matters

McCarthy Tétrault’s Doing Business in Canada is an indispensable reference tool for lawyers and business persons regarding the legal aspects of establishing or acquiring a business in Canada. The newest edition reflects legislative changes including:

  • Canadian anti-spam legislation (CASL)
  • updates on investment thresholds related to the Competition Act and Foreign Investment laws
  • Supreme Court decisions and legislation affecting copyrights
  • new information for employers regarding unjust dismissal complaints
  • updates on anti-treaty shopping measures introduced in 2014

We encourage you to consult one of our lawyers to gain a more comprehensive analysis of the legal implications of your proposed investment.

Download the Continue Reading

Good Faith, Honest Performance and M&A: Top 5 Takeaways Stemming from Bhasin v. Hrynew

Exploring the impact on Canadian mergers and acquisitions of the Supreme Court of Canada’s recent recognition of a new common law duty of honest performance

Posted in Contractual Matters, Private Transactions, Public M&A, Strategy

There’s been a lot of buzz surrounding the Supreme Court of Canada’s recent precedent-setting judgement, Bhasin v. Hrynew, 2014 SCC 71, in which the Court recognized, for the first time, a new common law duty that applies to the performance of contracts throughout Canada. The new common law duty is a duty of honest performance, and is a manifestation of the general organizing principle of good faith. The implication is that parties must perform their contractual duties honestly and reasonably, and that they must have appropriate regard to the legitimate contractual interests of the other parties to the contract. … Continue Reading

New 2015 Investment Canada Act WTO Review Threshold

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

Industry Canada has announced that the 2015 Investment Canada Act (“Act”) threshold that applies to most direct acquisitions of Canadian businesses by non-Canadians will be C$369 million.  This is an increase from last year’s $354 million threshold. The threshold applies to the gross book value of the target’s assets. Note that under the Act, a non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.

The existing lower threshold of C$5 million will continue to apply to transactions that relate to cultural businesses or where none of the parties are from a country that is a WTO member.… Continue Reading

GOOD FAITH BARGAINING? Recent Decision Implies a Duty to Negotiate in Good Faith

Posted in Contractual Matters, Private Equity, Private Transactions, Strategy

A duty to negotiate in good faith appears to run counter to the adversarial nature of bargaining. However, parties may have a duty to negotiate in good faith according to the recent decision in SCM Insurance Services Inc. v. Medisys Corporate Health LP, 2014 ONSC 2632, where the Ontario Superior Court held that the parties had intended to create “an enforceable obligation” to negotiate in good faith despite no express covenant to do so.

Summary of Facts

In 2011, Medisys sold its independent medical examinations (IME) business to the Plaintiffs and agreed to a five year non-compete and non-solicit … Continue Reading

Reasonable Efforts vs. Best Efforts – Why the Fuss?

Posted in Contractual Matters, Strategy

Last fall, we featured a blog post that offered a Canadian perspective on the interpretation and use of benchmarking in efforts clauses. Some of the commentary that ensued suggests that Canadian courts were “doomed to incoherence” by distinguishing between best efforts and reasonable efforts.[i]

Yet this distinction between efforts clauses has existed for some time in Canadian jurisprudence[ii] and Canadian courts have continued to render coherent decisions with very little difficulty in applying the standards of performance to efforts clauses.[iii] This leads to the reasonable conclusion that, in fact, there is no crisis and no reason to … Continue Reading

SHOTGUN! You should know this before triggering a buy-sell provision

Posted in Contractual Matters, Private Equity, Private Transactions, Shareholders, Strategy

There are important lessons in a recent Ontario Court of Appeal decision examining shotgun buy-sell provisions, and in particular, the enforceability of a buy-sell offer that does not perfectly comply with the terms and conditions of the shotgun provision.

Unanimous shareholder agreements, partnership agreements, and joint venture agreements often contain what is commonly known as a “shotgun buy-sell provision”, which provides a mechanism for involuntarily expelling one or more parties from the business venture when the business relationship between them sours.… Continue Reading

New 2014 Investment Canada Act WTO Review Threshold

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

Industry Canada has announced that the Investment Canada Act (Act) threshold for 2014 that applies to most direct acquisitions of Canadian businesses by non-Canadian investors from World Trade Organization (WTO) member countries is $354 million (an increase from last year’s $344 million threshold). The threshold applies to the gross book value of the target’s assets. Note that under the Act, a non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.

The lower threshold of $5 million continues to apply to direct investments that relate to cultural businesses or where none of the non-Canadian parties comes from a … Continue Reading

A Guide to Canadian M&A in the Second Half of 2013

Posted in Awards and Recognitions, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

In July, we published a blog post on the Canadian M&A landscape in the first half of 2013.  As 2013 has now come to an end, it seems appropriate to recap what happened in the second half of 2013.  McCarthy Tétrault advised on seven of Lexpert’s top ten deals of 2013, published in the January issue of Lexpert.  Below, we’ve highlighted some of the major trends and deals that transpired during Q3 and Q4 of 2013.

Second Half Sees Fewer but Larger Deals

Canadian companies were involved in 2,325 announced deals valued at $158.2 billion in 2013, down Continue Reading

Dealmaking in the Beauty and Personal Care Space

Highlights from the Recent Mergermarket Report, Buying Into Beauty

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A

Check out our new post published on our Retail Consumer and Advisor Blog on Buying Into Beauty, the recent Mergermarket report prepared in association with Michel Dyens & Co. In addition to highlighting some of what we think are the key themes coming out of that report for the retail and consumer products audience in particular, our post also summarizes some of what we think are the key takeaways on M&A activity in the beauty and personal care industry more generally.

Of course there is plenty more exciting news on M&A activity in this space, which you can read about … Continue Reading

Should a Seller Care About Due Diligence?

Yes. And here are a few MORE reasons why.

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

In our recent post we considered, to what extent, the seller in the context of an M&A transaction should care about legal due diligence, and suggested that there are a number of important reasons why a seller should concern itself with legal due diligence in the face of an acquisition.

In addition to our thoughts on the utility of seller due diligence for the purpose of uncovering potential barriers to the sale of the target business, the seller will also want to ensure that it can actually make the representations and warranties that it has been asked to make in … Continue Reading

Should a Seller Care About Due Diligence?

Yes. And here’s a few reasons why.

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

Legal due diligence is typically a key part of an acquisition, but historically the focus has been on diligence from the perspective of the buyer, and less frequently from the perspective of the seller. Of course, this is natural given it’s the buyer who will want to uncover everything it can about the business it plans to acquire before a definitive agreement is entered into. But does this mean that sellers shouldn’t also care about legal due diligence?

There are a number of important reasons why a seller should concern itself with legal due diligence in the face of a … Continue Reading

Are you meeting expectations? A Case for Benchmarking

A Canadian perspective on the interpretation and use of benchmarking in an efforts clause

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy

The authors of a recent US article appearing in Corporate Counsel explored how efforts clauses – that is, contractual provisions that require one party to a contract to exercise some standard of effort to maximize the benefits to be received by the other party to the contract – may be improved. Their hypothesis is simple: parties often expend far too much time negotiating over the adjectives “reasonable” or “best” and far too little time drafting benchmarks into the agreement as an objective measure of how efforts are to be applied. Their conclusion is that open-ended benchmarking assists in ensuring parties … Continue Reading

A Guide to Canadian M&A in the First Half of 2013

Recovery Hits Roadblock: 2013 sees decline in Canadian and Global deal volume and value

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

As we move into the second half of 2013, it seems appropriate to look back at what has gone on so far this year across the Canadian M&A landscape. Below we’ve highlighted some of the major news items and deals that have taken place so far.

First Half Sees Fewer and Smaller Deals. The first quarter of 2013 ended with the fewest number of Canadian M&A transactions in a particular quarter since Q1 2011. By value, it was the quietest quarter in three years. A first quarter Mergermarket report found an 11.4% reduction in deal volume (124 announced transactions) and … Continue Reading