Whether contemplating an acquisition or assessing strategic alternatives, there are many aspects of the Canadian public M&A market that may influence your decision. COVID-19 has undoubtedly played a role in recent transactions, but other factors and recent developments could also have an impact on your transaction.
Below are five recent public M&A developments that should be on your radar.
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Focus on MAC clauses intensifies. It is no surprise that the COVID-19 pandemic has impacted pending transactions, as remorseful buyers assess alternatives to avoid following through on acquisitions in a difficult environment. With the ability to terminate based on material adverse change (MAC) clauses often curtailed due to carveouts, buyers are getting creative, with the focus on covenant compliance and whether actions taken by a target in response to the pandemic may provide an opportunity to walk away.
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Rights of parties being arranged are what courts care about. A recent Ontario court decision confirmed that the focus in statutory plans of arrangement, the most common structure for friendly Canadian public company deals, remains on shareholders and those whose rights are being arranged. Third parties, including unsuccessful bidders in an auction, will have difficulty leveraging arguments before the court to block transactions where their rights are not directly impacted.
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The take-over bid regime is here to stay. The 2016 Canadian take-over bid regime amendments provided for, among other things, a minimum deposit period of 105 days and an irrevocable minimum tender condition of 50 per cent of shares not owned by the bidder. While the minimum tender condition may give significant shareholders a more prominent role in determining whether bids can succeed, the regulators have confirmed that only truly exceptional circumstances will merit an exception from such condition ― and those circumstances have yet to present themselves.
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Mini-tenders may be back, but proceed with caution. Initially popular in the 1990s, mini-tenders are public offers where the bidder is seeking to acquire less than 20 per cent of a company’s shares and, therefore, do not trigger the application of the formal take-over bid regime. In recent years, they have re-emerged, often in the context of contested acquisitions where they include a request for proxies to attempt to vote down a competing transaction. While the formal take-over bid regime, and the protections for shareholders that it affords, does not apply to such bids, securities regulators continue to closely scrutinize mini-tenders on public interest grounds and are willing to block such offers if their terms are too aggressive.
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Amendments to BAR requirements seek to ease the regulatory burden. Canadian public companies are required to file a business acquisition report (BAR) within 75 days of completing a “significant acquisition.” Recent amendments to the BAR requirements that curtail the circumstances where a transaction by a non-venture issuer is considered a significant acquisition are now in effect. This will not only impact the need for issuers to file BARs, but also reduce the likelihood that significant-acquisition disclosure (which includes historical and pro forma financial statements) is required in proxy circulars for M&A transactions where share consideration is used or in prospectuses used to raise funds for cash consideration. This is another example of efforts by Canadian securities regulators to reduce compliance costs for reporting issuers.
