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 be maintained by the seller or sold to a different party.
In the first part of this blog post series, we looked at recent general trends in the Canadian M&A market overall, including a decline in overall transaction activity since 2009.
However, when looking at M&A activity in certain sectors or by deal value, we see slightly different trends emerging:
- The steepest decline in activity has been concentrated at the lowest end of the market (value under $5M), where we have seen a 64% decline in the number of transactions since 2009 or an annualized decline of 18% per year.
- At the high end of the market (value over $250M), overall transaction activity has seen strong growth, increasing by 47% since 2009 or an annualized growth of 8% per year.
- Activity in the $10M to $100M level of the market has been resilient, with an overall decline in the number of transactions of only 7% since 2009 or an annualized decline of just 2% per year.
The Canadian Coalition for Good Governance (CCGG) recently published a policy encouraging issuers to take measures to enhance “proxy access”, meaning the ability of shareholders to have meaningful input into the director nomination process. The CCGG published this policy in the midst of a surge of voluntary adoption of proxy access by significant issuers in the United States. As of the date of this publication, we are not aware of any Canadian issuer that has adopted proxy access.
In Canada, a registered shareholder can always have a say in the director nomination process by nominating individuals from the floor of a shareholder meeting (being mindful to comply with any applicable advance notice requirements in the company’s by-laws). However, given that most votes are generally subject to management proxies submitted in advance of the meeting, a shareholder realistically seeking to have its nominees elected will have to undertake a proxy campaign in advance of the meeting (in the case of a solicitation of more than 15 shareholders, a dissident proxy circular will have to be prepared, filed publicly on SEDAR and delivered to shareholders whose proxy is solicited).
Canadian M&A activity has been on a rollercoaster ride in recent years, influenced by market factors, currency fluctuations, oil prices and other economic conditions. In this two-part blog post series, we highlight some interesting trends that we have identified from our recent market review.
In spite of the apparent volatility in M&A activity in Canada, our review of market activity reveals that there have been some notable trends in recent years when looking at M&A deal activity overall.
Earn-out provisions are intended to provide a “win-win” scenario for buyers and sellers to maximize their post-closing returns. However, they can also lead to post-closing controversy and litigation. For instance, what happens when the buyer’s actions divert, defer or entirely prevent an earn-out payment from being triggered? The Delaware Supreme Court’s recent decision in Lazard Technology Partners, LLC v. Qinetiq North America Operations, LLC provides a cautionary tale relating to the drafting of earn-out provisions in M&A transactions.
As discussed in a previous blog post, earn-out provisions are negotiated to bridge the valuation gap between buyers and sellers. They are typically based on time or performance. Time-based earn-outs are triggered on specified dates until the final payment is made. Performance-based earn-outs are typically based on certain milestones that the parties have agreed on, such as EBITDA or net income. A downside of performance-based earn-outs is that they may be missed because of events over which the parties have no control, such as market volatility, diminished access to capital and weakened consumer demand. Or, the earn-out may be missed because of the buyer’s discretionary actions. Continue Reading
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.
In the context of M&A transactions, the use of “clean rooms” (i.e., data rooms containing commercially sensitive information concerning a target only available to clean teams) and “clean teams” (i.e., isolated work groups often made up of third party experts having access to clean rooms) to isolate commercially sensitive information concerning a target from the prospective bidder(s) can sometimes help clear the path to a negotiated deal. Continue Reading
After taking a break last proxy season, “golden leash” arrangements are back in the spotlight. A few days ago, Institutional Shareholder Services Inc. (“ISS”) gave “cautious support” to so-called “golden leash” arrangements between Third Point LLC and its two nominees to the board of Dow Chemical Co.
Insurance M&A activity, in both the Canadian market and globally, has been on the rise since the 2008 financial crisis, and is expected to continue to increase. Deloitte recently reported that there were 399 insurance M&A transactions in Canada and the United States during 2014, an increase of 27% over 2013. The consulting firm Optis Partners reported that the first half of 2014 was the most active M&A period since they started tracking transaction information in 2008. In a survey published in 2014 by the professional services firm Towers Watson, over 85% of North American insurance executives said that they expected insurance M&A volume to grow over the next one to three years, and 78% of such executives stated that they were actively considering acquisitions.
Social media has very seldom been leveraged in Canadian proxy contests. One reason for this may be the lack of knowledge about its full potential. To address this reason, our first post in this series reviewed social media’s impact on public discourse and proxy contests in the U.S. and Canada.
Another reason for the limited use of social media in Canadian proxy contests is the lack of specific regulatory guidelines. Unlike in the U.S., in Canada there is no regulatory guidance on the use of social media to communicate with shareholders. This article reviews some legal considerations applicable to the use of social media in Canadian proxy contests.