During the Tech M&A/Corporate Finance panel at McCarthy Tétrault’s second annual Toronto Technology Law Summit, Ian Palm shared the results of a study into trends and opportunities in the Canadian M&A market, including trends in deal volume, value, geographic origin, and sector. Four of the key takeaways from the study were:
- Canadian M&A activity in the technology sector, particularly in the mid-market, continues to be robust despite challenging economic times.
- The “nuclear winter” experienced in recent years by venture capital in Canada is showing signs that it is beginning to thaw.
- Cash rich tech companies are looking for ways to innovate through acquisition.
- US companies involved in a war for talent are looking to the talent pool in Canada in certain sectors.
Vanessa Grant followed Ian and reviewed current trends in M&A deal terms (including changes to earnouts, escrow periods, price adjustments, indemnifications and material adverse change provisions).
RIM’s Group Lead, Mergers & Acquisitions, Philip Kurtz, shared his take on tech M&A from the buyer’s perspective, responding to concerns frequently expressed by sellers. For sellers who want a fast closing, Phil recommended:
- Bring experienced counsel to the table who know when to make a stand and when to keep the deal moving.
- Tie your banker’s fee to a success measure, not a finder’s fee.
- Have a plan and start populating the data room ASAP.
- Review the rights of your investors early and in advance of the deal.
- Bring the right people from within your organization to the negotiation table.
As to assertions that terms are not “market,” Phil observed that:
- Each deal has its unique characteristics and sellers should consider the unique elements that are important to your particular strategic buyer.
- Sellers can’t expect to renegotiate the letter of intent (so they should read it carefully and thoughtfully and consider all of its deal terms before moving forward).
- Sellers should focus on liability baskets and caps instead of getting bogged down on qualifiers for each and every representation and warranty.
For sellers seeking closing certainty, Phil said sellers should keep in mind that:
- Material adverse change clauses are rarely invoked.
- Planning and expecting to deal with employee transition issues will often go a long way to satisfying closing conditions.
- Buyers are also heavily invested in making sure closing conditions are met or overcome.
Lastly, Cheryl Slusarchuk discussed when working to complete transactions as part of a consortium. She shared wisdom and war stories based on her experience assisting RIM in their recent acquisition of Nortel Patents as part of the “Rockstar” consortium along with Apple, Microsoft, EMC, Ericson, Sony, and Oracle.
2012 should prove to be another interesting year in Canadian tech M&A and financing, and we’ll be watching these trends to see their impact in the coming year.