The American Bar Association recently published the 2016 Canadian Private Target M&A Deal Points Study. The study, which was authored by a group of Canadian lawyers, including several from Norton Rose Fulbright Canada LLP, was based on a review of publicly available acquisition agreements for transactions signed in 2014 and 2015. The study provides a useful comparison of the prevalence of important deal terms in both Canadian and U.S. M&A practice. A brief overview of some of the largest differences identified in the study between Canadian and U.S. transactions is set out below:

  • No shop / no talk provisions: These provisions generally prohibit a target or its representatives from soliciting or encouraging an acquisition proposal or participating in discussions that could be expected to lead to an acquisition proposal for the period between the signing of an acquisition agreement and the closing of a transaction. In Canada, 62% of deals had such a provision, while in the U.S., 90% of deals had this type of provision. Notably, the difference between Canadian and U.S. usage has narrowed between 2012 and the most recent version of the study.
  • Accuracy of representations: While it is customary that representations must be true at closing, representations can also be required to be true as of the time at which the acquisition agreement is signed. While unsurprisingly 100% of both Canadian and U.S. deals required that the targets' representations were accurate at closing, only 32% of Canadian deals required that the representations were accurate when they were made in contrast to 63% in the U.S.
  • Legal opinions: In both Canada and U.S., the prevalence of a provision in acquisition agreements requiring a non-tax legal opinion to be provided by the target's counsel has fallen in each year this study has been conducted. In the most recent study, 34% of Canadian deals had such a provision while only 11% of U.S. deals included this type of provision. This is down from 45% of Canadian deals in the 2012 study and 27% of U.S. deals in the 2011 study.

While no one factor can account for the discrepancies between U.S. and Canadian practice, the authors of the study suggest that the fewer deals for which information is available in Canada and the large percentage of Canadian deals that are in the natural resources sector may have an impact on the results. Even so, this study can be a useful indicator of what is considered "market" in Canada and the U.S. and is also a valuable guide to indicate trends in M&A practice.

The author would like to thank Mark Bissegger, Articling Student, for his assistance in preparing this legal update.

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