Cross-border public M&A deal terms - important differences between the U.S. and Canada

10 February 2016

Canada and the United States have one of the most significant cross-border investment relationships in the world. Robust M&A activity continues to expand between Canada and the U.S., both north bound and south bound. While Canada is heavily influenced by transaction activity, jurisprudence and trends in the U.S., there are important distinctions. M&A practices in North America have converged to a degree, but disparities between market terms on both sides of the Canada-U.S. border continue to exist. This is reinforced by the recent release of the American Bar Association's 2015 Canadian Public Target Mergers & Acquisitions Deal Points Study which analyzed 88 Canadian transactions with a value of C$50+ million announced in 2013 and 2014.1 This study is the second of its kind issued by the ABA, focussing on the acquisition of Canadian public targets. Below we identify some of the important differences between Canadian M&A transactions and the comparable U.S. M&A transactions analyzed as part of the ABA's 2015 U.S. Strategic Buyer/Public Target Mergers & Acquisitions Deal Points Study for transactions announced in 2014:

Target's Representations & Warranties Included
Deal Term US Canada
No undisclosed liabilities - all liabilities covered 48% 79%
No undisclosed liabilities - only GAAP liabilities covered 52% 21%
Compliance with law - no time limit 15% 69%
Compliance with law - date restricted 58% 21%
Compliance with law - current 27% 10%
Full disclosure 5% 40%
Closing Conditions Included
Deal Term US Canada
Availability of financing 0% 25%
Appraisal rights - cash only 0% 92%
Appraisal rights - cash/shares 13% 100%
No Shop - Fiduciary Out
Deal Term US Canada
Actual superior proposal 3% 14%
May reasonably lead to superior proposal 90% 85%
Superior Proposal Definition - Assets
Deal Term US Canada
All or substantially all 20% 85%
> 50% but < all 15% 11%
<50% 3% 2%
Superior Proposal Definition - Shares
Deal Term US Canada
All or substantially all 9% 69%
> 50% but < all 15% 24%
<50% 3% 2%
Match Right
Deal Term US Canada
Included 99% 97%
5 business days or more 28% 78%
4 business days 32% 1%
3 business days 26% 13%
Target Break Fee Triggers
Deal Term US Canada
Naked no vote/
expense reimbursement
24% 23%
Acquisition proposal & no vote 81% 85%
Acquisition proposal & outside date 77% 53%
Change in Board recommendation 98% 95%
Target Break Fee
Deal Term US Canada
Characterized as liquidated damages 31% 88%
Operating Covenant to Operate in Ordinary Course
Deal Term US Canada
Consistent with past practice 69% 91%
D&O Insurance - Premium Caps
Deal Term US Canada
No cap 5% 35%
300% 59% 25%
200% 12% 18%

1 We were pleased to once again participate in the Canadian Study, with Cyndi Laval serving as Vice-Chair, Stephen McKersie serving as an Issue Group Leader and Ian Palm and Kathleen Ritchie serving on the Working Group.


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