Mergers & Acquisitions Lawyer in Toronto, Ontario

In 2020, mergers and acquisitions (M&A) in Canada slowed to the lowest level since 2011 due to the COVID-19 pandemic and its economic effects. Only $158.7 billion of M&A deals were announced in 2020, compared to $234 billion the year before, according to Reuters. Now, as the economy returns more to normal with the arrival of COVID-19 vaccines, bankers expect M&A activity to go on an upswing.

A merger generally refers to two entities combining to form one company. An acquisition, on the other hand, is usually the taking control of one business by another business or individual through the acquisition of shares or assets in the target company. The two companies then continue to operate as separate enterprises, but with one company technically owning and controlling the other company.

In Canada, a merger often falls under the legal concept of amalgamation, which is governed by the Canada Business Corporations Act (CBCA).

If you’re in the process of merging with or acquiring another company or being acquired by another entity in or around Toronto, Ontario, contact Matthew R Harris Law P.C. to learn about your options and how best to proceed to seek the results you desire and protect your interests.

Amalgamations in Canada

Mergers — or amalgamations as they are called in Canada — can be accomplished completely online through the Online Filing Centre operated by Corporations Canada.

There are two forms of amalgamation offered — the long-form and the short-form. Long-form amalgamation requires approval by the shareholders of the two corporations that are merging. The submitted amalgamation agreement must address issues including:

• How the shares of each corporation will be converted

• An accounting of shares that are not converted

• Statement of any money used to buy out shareholders

• Proposed bylaws

• Details on how the amalgamation will proceed

Short-form amalgamation does not require a vote by shareholders and can be either “vertical” or “horizontal.” Vertical involves a holding company merging with one or more wholly-owned subsidiaries. The merged entity can change its name but must abide by the holding company’s articles of amalgamation.

In contrast, a short-form horizontal amalgamation involves the merging of two or more wholly-owned subsidiaries. The shares of all companies except the amalgamating subsidiary will be canceled, and the articles of amalgamation will be the same as the amalgamating subsidiary. A new name can be used.

Acquisitions in Canada

An acquisition in Canada can be accomplished by purchasing shares in a company or purchasing the assets of a company. An asset acquisition can focus on all assets of a company or just the assets of a branch or division of the target company.

A share acquisition must involve at least more than 50% of all outstanding shares so that the acquiring party can elect a majority of the directors. A share acquisition could also involve purchasing two-thirds of the target company’s shares with the intent of purchasing the rest later on in a “second stage” or “going private” round.

A share purchase of 90% can be done with the intent of compulsorily acquiring the balance under statutory compulsory acquisition provisions in applicable governing corporate legislation.

Take-Over Bids

A take-over bid is the equivalent of a tender offer in the United States, in which one person or entity offers cash or securities or both in exchange for shares of the target company. The bid can be friendly or hostile.

Canadian securities laws regulate take-over bids in order to give the target company adequate time to consider the offer. The laws also require the target company’s directors to compile a “take-over bid circular” to be distributed to shareholders explaining the bid.

Important Considerations & Potential Pitfalls

A properly executed merger or acquisition often leads to higher valuations for the remaining companies or merged company, though there may be a high cost in employee turnover, whether through downsizing or simple attrition.

The most basic element in mergers and acquisitions is value. The acquiring entity must negotiate or otherwise achieve a proper price for the target it seeks to acquire. The target firm must likewise receive what it considers to be fair value — or more — for what it is surrendering.

This all requires due diligence, as the acquiring entity will want to examine the financial and other records of the target company. The process can take a long time, so both sides must be patient and flexible. A hostile take-over bid will therefore be even more challenging.

Some of the pitfalls that can arise in the process include:

• Incomplete Due Diligence: The seller is often going to put a happy face on everything, including finances. If you’re the acquiring party, you must probe deeply to get at the truth.

• Inadequate Legal Protections: The documents involved in a merger or acquisition can come back to haunt you if they aren’t crafted diligently with an eye toward potential trouble down the road. Make sure an experienced M&A lawyer reviews or crafts your documents.

• Incompatible Company Cultures: Will management and employees at the two entities be able to work together, or will there be culture shock? Will an acquired company’s principals be able to adapt to a new management style?

Why You Need a Lawyer

As business heats up in the latest phase of the nation’s pandemic response, mergers and acquisitions will no doubt increase. If you’re on the lookout to merge with or acquire another company, or if you’ve been approached with a bid or merger proposal, you need the best legal counsel you can find.