Private M&A in Canada

This article will be relevant for those planning to purchase shares or assets of a private company in Canada or sell a company in this jurisdiction.

Acquiring private properties in Canada requires careful negotiation and documentation of the key terms of the deal. This blog post explains the critical issues in the Canadian context regarding taxes, labor law, pensions, privacy, IP and other areas in M&A deals.

Due diligence (DD) issues

Due diligence for M&A deals by buyers in Canada often includes investigations into all types of issues that may provide the buyer with true information about the financial, legal, operational situation of the target object.

Typically, sellers are not eager to prepare DD reports to share with potential buyers. However, when it comes to auctions, sellers have no choice. They, or their consultants, typically create physical or digital data rooms so that buyers can conduct their own audits based on that data.

DD is a mandatory step in the purchase and sale of assets of a Canadian target company.

Termination of rights

If you decide to initiate a M&A transaction in Canada, please note that the parties usually agree on the rights to terminate the agreement upon signing. 

General rights of termination include:

• mutual agreement: allows termination by mutual agreement;
• breach of representation or non-compliance with the agreement: allows the termination of the violation by the other party of its assurances and warranties / obligations (usually subject to periods of materiality and healing);
• “out of date”: allows termination if the conditions for completion of the transaction have not been met by the agreed date; and
• legal impediment: allows termination if any law or government regulation restricts / prohibits the transaction.

Representations and guarantees

Sellers’ guarantees and compensation - their volume varies depending on the transaction size. Typically, they cover ownership of shares and assets, their condition, financial statements, legal compliance and outstanding claims / obligations.

Employment issues

Company's employees are automatically transferred when the buyer purchases the company's shares. When the buyer acquires the assets of a Canadian company, the contract of any transferred employees is terminated, resulting in the seller's obligation to provide reasonable notice or compensation. In the case of unionized workers, the buyer will have to accept the relevant collective agreement.

The buyer must provide union employees with the benefits specified in the collective agreement, regardless of the structure of the transaction. Non-union workers are generally still entitled to the same benefits as they were before the deal.

Updates and trends

Strong M&A activity in Canada is expected to continue in the future thanks to low interest rates, a stronger Canadian dollar, private equity and a stable economy despite the current pandemic.

Several sectors have seen a marked increase in Canadian M&A and investment activity in recent years. In the financial services market, a large number of recent deals have resulted from consolidation in the insurance industry with very attractive performance for sellers. 

M&A activity in the Canadian energy sector recovered somewhat after a period of depressed pricing and industry restructuring.