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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

Canadian M&A Activity: Recent Insights & Trends – Part Two

Posted in Private Equity, Private Transactions

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
Continue Reading

Canadian M&A Activity: Recent Insights & Trends – Part One

Posted in Private Equity, Private Transactions

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.… Continue Reading

Four Due Diligence Issues in Insurance M&A Transactions

Posted in Private Transactions, Public M&A, Strategy

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 … 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 Competition Act Merger Notification Threshold

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

The Competition Bureau has announced that the pre-merger notification transaction-size threshold for 2015 will increase to $86 million from the 2014 threshold of $82 million.  The 2015 threshold will come into effect immediately following publication in the Canada Gazette Part 1 (anticipated to occur on February 7, 2015).  As per the indexing mechanism set out in the Competition Act (Act), the pre-merger notification threshold is reviewed annually.

The threshold is based on the book value of assets in Canada of the target (or in the case of an asset purchase, of the assets in Canada being acquired), or the gross … Continue Reading

5 Corporate Governance Tips to Reduce Risk in the M&A Process

Posted in Private Transactions, Public M&A, Shareholders, Strategy

Because of the growing risk of litigation by unhappy (or simply opportunistic) shareholders following the sale or acquisition of a company, corporate governance practices during the M&A process face increasing scrutiny.

In a recent article titled “Documenting the Deal: How Quality Control and Candor Can Improve Boardroom Decision-making And Reduce The Litigation Target Zone”, forthcoming in The Business Lawyer, Leo Strine, Chief Justice of the Delaware Supreme Court, sets forth some best practices for directors and legal and financial advisors “to conduct an M&A process in a manner that: i) promotes making better decisions; ii) reduces conflicts of … 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

CETA Will Create a Two-Tiered System for Investment Canada Act Reviews

Posted in Private Transactions, Public M&A, Strategy

The text of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement (CETA) is due to be released soon, but it remains to be seen if the Canadian government will clarify which countries, in addition to those in the EU, will benefit from the higher $1.5-billion threshold for review under the Investment Canada Act (ICA).

On October 29, 2013, the Canadian government released the Technical Summary of Final Negotiated Outcomes of CETA, in which it indicated that the ICA threshold would be raised to $1.5 billion for EU investors and that investors from Canada’s other free trade agreement … Continue Reading

Bitcoin Accepted Here? Funding M&A Transactions by Way of Bitcoin

Posted in Private Equity, Private Transactions, Strategy

There is no denying the increasing popularity and notoriety of the virtual currency Bitcoin.  Bitcoin market capitalization currently stands in the billions of dollars, with over 13 million Bitcoins having been mined and made available for circulation.  An increasing number of merchants, including Dell, have begun accepting payment by way of Bitcoin.  The list of goods and services that have been purchased with Bitcoin now includes university tuition, airline tickets, cars, and pizza delivery.  Some companies have started paying employees in Bitcoins.  Canada in particular has been a world leader in Bitcoin ATM’s: the first Bitcoin ATM in the world … 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

New 2014 Competition Act Merger Notification Threshold

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

The pre-merger notification transaction-size threshold for 2014 has increased to $82 million from the 2013 threshold of $80 million. As per the indexing mechanism set out in the Competition Act (Act), the pre-merger notification threshold is reviewed annually.

The threshold is based on the book value of assets in Canada of the target (or in the case of an asset purchase, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Act.  The Competition Bureau must generally be given … 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

DEFENSIVE TACTICS DURING A PROXY CONTEST: lessons from the Oremex saga

Posted in Private Equity, Private Transactions, Shareholders, Strategy

There are important lessons in a recent Ontario Superior Court decision examining defensive tactics taken by a board in the context of a contested shareholders’ meeting.

In Concept Capital Management Ltd. v. Oremex Silver Inc., 2013 ONSC 7820, the board of Oremex — during a contested election — postponed a shareholders’ meeting and issued shares to a third party, GRIT, in a financing transaction that closed in escrow on the same date as the revised record date for the meeting. Oremex took the view that the new shares could be voted at the contested meeting.

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

DON’T ASK, DON’T TELL?

Lessons from the SEC’s recent “ring fencing” settlement with Revlon

Posted in Private Equity, Private Transactions, Public M&A, Shareholders

The recent settlement in the United States between the Securities and Exchange Commission (SEC) and Revlon highlights the importance of not appearing to obstruct the flow of material information to shareholders.

The SEC settled charges that Revlon misled shareholders during a going private transaction. The SEC’s order found that to avoid a potential disclosure obligation, Revlon engaged in “ring fencing” to avoid knowing that the transaction’s consideration had been deemed inadequate by a third party’s financial advisor.… Continue Reading