A Mergers & Acquisitions practice is one involving transactions that effect or threaten to effect a change of control or ownership of corporations. Typically this would involve representation of offerors, offerees, and other interested parties in connection with takeover bids, amalgamations, arrangements, and the like, as well as “defensive” advice to corporations that perceived themselves to be vulnerable to unwanted or unsolicited offers. The M&A practitioner’s primary role is to lead a team of specialists and to coordinate their input on the corporate, securities, finance, tax, competition, labor, employee benefits, real property, regulatory, environmental, intellectual property, litigation, and other areas of law that are likely to be implicated by a proposed transaction, while providing senior management with strategic input in conjunction with other M&A specialist advisors such as investment bankers, accountants, communications experts, and government relations consultants. The deal management role often encompasses working with and incorporating the input from legal and other specialists in other provinces and countries. The definition of an M&A practice should include the ability to provide strategic advice, to apply seasoned business judgment, and to creatively deal with the fast-changing moves and counter-moves of competitive bidding situations.
Strength in Metals and Mining M&A
While the Canadian M&A market has slowed, it remains quite active in the metals and mining industry, despite the COVID-19 pandemic.
In an interview with Canadian Lawyer, McCarthy Tétrault LLP partner Shea Small described the M&A landscape: “Canada remains a very attractive destination for foreign capital in metals and mining in this current COVID world. The bulk of the public M&A activity in Canada is accounted for by mining so far this year.”1
Commodity prices are stoking some of the activity, said Small. Gold prices have risen during the pandemic, driving gold company performance and M&A activity. Copper prices, which Small said is a “proxy for how the economy is doing, overall” have maintained, notwithstanding the economic slowdown. Similarly, iron ore has held steady, aided by Chinese demand.
M&A in the oil and gas sector, meanwhile, is experiencing greater difficulty. The pandemic has dried up demand, and limited storage capacity has negatively impacted pricing, said Small.
In whichever industry the deal is taking place, the pandemic has transformed the nature of M&A, with deals being transacted remotely, from start to finish.
An Opportunity for Deals
Despite a general slowdown, the COVID-19 pandemic has created opportunities to buy distressed assets, which could benefit both cash-rich acquirers and the insolvent firms they target.
“There still is a significant amount of money in the system,” said David Bish, head of the Torys LLP corporate restructuring and advisory practice, in an interview with Canadian Lawyer.2 While potential buyers may be more cautious given the uncertainty caused by the pandemic, a low-interest-rate environment means those with capital are looking for ways to deploy that money. With many distressed companies looking for a lifeline, an acquirer that found valuations too high pre-pandemic now may find many opportunities for a lucrative deal.
Distressed M&A situations also offer an “extraordinary diversity of tools,” Bish said, that aren’t available in regular M&A cases. That is thanks to a court process that wields enormous power. Under the Companies Creditors’ Arrangement Act, a company can restructure its financial affairs to deal with its debts and operations and emerge as a going concern. Or under court supervision, the company can sell some or all its assets to pay creditors.
“You can sell without shareholder approval, you can force the assignment of contract that would otherwise require consent to negotiate, you can reject parts of the business you don’t want, liabilities you don’t want to assume, employees you won’t need,” said Bish.
“The toolbox encourages incredible creativity because there’s so much more you can do that you would not be able to do outside of a court process in a regular M&A situation.” As well, the process ends with a court-granted vesting order that gives the purchaser “the cleanest form of title you can get, a title free and clear of liabilities you don’t want to encumbered with.”
- Macnab, Aidan. “M&A strong in metals and mining, despite general lull, says lawyer.” Canadian Lawyer. June 16, 2020. https://www.canadianlawyermag.com/practice-areas/corporate-commercial/ma-strong-in-metals-and-mining-despite-general-lull-says-lawyer/330580.
- Olijnyk, Zena. “Covid-19 provides opportunity for deals in distressed mergers & acquisitions: Torys.” Canadian Lawyer. September 29, 2020. https://www.canadianlawyermag.com/practice-areas/corporate-commercial/covid-19-provides-opportunity-for-deals-in-distressed-mergers-acquisitions-torys/333750.