Canadian M&A Perspectives

Private and Public Mergers & Acquisitions | Private Equity

Canadian Public Company M&A Disclosure: Key Considerations from the CSA’s 2016 Continuous Disclosure Review Program

Posted in Uncategorized
Heidi Gordon

The Canadian Securities Administrators recently released the results of its continuous disclosure review program for the fiscal year ended March 31, 2016, which includes findings and guidance related to disclosure regarding forward looking information, non-GAAP financial measures, information circulars and material contracts – all of which have particular significance in the M&A context.

On July 18, 2016, the Canadian Securities Administrators (CSA) published a summary of the results of their annual continuous disclosure review of reporting issuers for fiscal year 2016, in CSA Staff Notice 51-346 – Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2016 (Staff Notice). The Staff Notice includes information about areas where common disclosure deficiencies were noted, with examples in certain instances, to help Canadian public companies address these deficiencies and to illustrate their view of best practices.

Although the Staff Notice is of general significance to Canadian public companies looking to fine-tune the quality of their public disclosure, there are a handful of considerations that emerge from the Staff Notice that are particularly relevant in the M&A context. As such, the discussion below provides important reminders to Canadian public companies contemplating M&A activity in the near future. In addition to the matters discussed below, the Staff Notice also includes a discussion of certain M&A specific matters that relate to financial statement disclosure, including how to identify and account for contingent consideration in business combinations, and goodwill and intangible assets recognized in business combinations.

Forward Looking Information

When a Canadian public company makes disclosure of a proposed acquisition, that disclosure will generally involve disclosure regarding possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action and includes future oriented financial information with respect to prospective financial performance, financial position or cash flows that is presented either as a forecast or a projection. This is what is known as “forward looking information.” Continue Reading

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
Daniel BénayMason GordonTamara Shabazova

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 can produce vague standards open to interpretations. The application of these provisions can be linked to the particular circumstances in which they are applied and which may not have been considered by the contracting parties at signing. There is no clearly defined or settled meaning to the terms “best efforts” or “commercially reasonable efforts.” Although the terms are frequently used in M&A deals, there is much uncertainty as to the meanings associated with the standards of efforts.

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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
Ana BadourGenevieve PintoJake IrwinHeidi Gordon

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 fintech M&A process. However, in addition to the typical focus on issues related to intellectual property and information technology, due diligence in the fintech space requires careful consideration of several unique issues as described below. 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 of good faith in Canadian contract law. The third edition can be purchased here.

This article was originally posted on the Canadian Appeals Monitor Blog on June 2, 2016.

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


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 15, 2013 publication, Proposed Changes to Early Warning Reporting System Address Market Transparency and Shareholder Activism in Canada, relating to the initial EWR proposals) and the CSA’s subsequent update to those proposals on October 10, 2014 (see our October 15, 2014 publication, Early Warning Reporting Threshold Remains at 10% While Other Changes to Enhance Transparency Will Be Implemented, relating to the updated proposals). 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 amendments to NI 62-104 and National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, and will be largely consistent with the update on changes to early warning rules released by the CSA on October 10, 2014. A separate article on these changes will follow.

The New Bid Regime is largely consistent with the CSA Notice and Request for Comment published by the CSA just shy of a year ago on March 31, 2015 (Prior Proposal), with one significant variation – rather than increasing the minimum bid period to 120 days as described in the Prior Proposal, the CSA has settled on a minimum bid period of 105 days. The driving factor behind changing the minimum bid period to 105 days (rather than 120 days) is the CSA’s desire to preserve the utility of the compulsory acquisition provisions available under Canadian corporate law statutes. Continue Reading

Rethinking Representation and Warranty Insurance in Canada

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

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 increased demand for RWI to facilitate deals, insurers have also been quick to develop new customized solutions for risk allocation, making RWI even more attractive. As the underwriting process has been streamlined and insurers have developed a proven claims history, RWI is now a recognized product in the M&A community.

RWI reduces, or even eliminates, seller proceeds being trapped in escrow under traditional indemnification provisions and ensures the buyer is able to recover losses directly from a financially secure insurer. It also facilitates the often complex negotiations surrounding representations and warranties that sellers are willing to give and buyers are willing to accept, potentially reducing legal fees.

RWI does not make sense for all transactions. Prior to proceeding with a RWI policy, in addition to cost, timing and coverage considerations, we recommend a careful review of the policy exclusions and how they line up with the risk profile of the business.

For more information on the benefits of RWI, the process and timing considerations for obtaining RWI, and the costs of RWI, check out our Canadian Representation and Warranty Insurance FAQ.

Canadian Representation and Warranty Insurance FAQ

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy
Ian C. MichaelJake IrwinLama Sabbagh

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 unique for each party.

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Cybersecurity and M&A – Part Three: Cyber Insurance

Posted in Contractual Matters, Private Transactions, Public M&A
Roland HungMatthew HarrisBeverly Ma

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.

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Updated OECD Principles of Corporate Governance: Canada Continues to be Ahead of the Curve

Posted in Public M&A, Shareholders, Strategy
Ryan HornbyBlake C. Jones

The OECD’s updated G20/OECD Principles of Corporate Governance (the “Principles”) highlight that core corporate governance principles are well embedded in the Canadian framework and that many of the new governance initiatives outlined in the Principles are already being pursued in Canada.[1] The Principles, first published in 1999 and previously revised in 2004, provide a widely accepted international reference point used by policymakers in setting corporate governance standards across the globe.

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