leveraging technology for the canadian private target ... · • extranet that streamlines...

Osler, Hoskin & Harcourt LLP

André Perey

Natalie Munroe

Leveraging Technology for the Canadian Private Target Mergers & Acquisitions Deal Points Study

March 2019

ABA MARKET TRENDS COMMITTEE MEETING

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY

Background


Previous Studies

• Manual review of acquisition agreements

• Complete questionnaires in Word

(100 acquisition agreements = 1,000 Word documents)

• Compile information from Word documents in Excel

• Aggregate and produce report


Kira SystemsLeveraging

andHighQ


• A software that analyzes and

extracts certain information

from documents

• Enhances legal due diligence

• Extranet that streamlines

collaboration, legal service

delivery, legal operations,

client engagement and much

more

• Plan, organize, track and

complete work more

efficiently and intelligently

Kira Systems

• Set up a worksheet for each questionnaire.



Kira Systems

Kira Systems

• All worksheets were applied to each acquisition agreement


Kira Systems

• For each worksheet, exported the information extracted in Kira and

uploaded to HighQ


HighQ

• Two main tabs in HighQ: Questionnaires and Results


HighQ

• Each questionnaire was built as an interactive questionnaire in HighQ

• As a reviewer, you would only see the folder for the questionnaire assigned to you


HighQ

• Once you enter the folder, you are taken to the first acquisition agreement

• The questionnaire is on the right-hand side


HighQ

• After the general information, reviewers answer the specific

questionnaire



HighQ

• To ensure that the review

could be tracked, reviewers

would indicate by checkmark

once their review was

complete

• We included notes boxes to

give reviewers an ability to

communicate with other

reviewers

HighQ

• The “Results” tab shows the results from the review of each

questionnaire for each acquisition agreement


HighQ

• The results were exported to Excel and aggregated in order to

generate the study results



Deal PointsStudy


Private Target M&A Deals – North American Comparison

US 2017 Deal Points Study Canadian 2018 Deal Points Study

Years Deals which closed in 2016 and H1 2017 Deals signed in 2016 and 2017

Number of Deals 139 91

Three Principal Industries

- Technology

- Health Care

- Construction & Materials

- Oil & Gas

- Industrial Goods & Services

- Health Care/Food & Beverage

Deal Sizes* - $30M - $50M - 7.9%- $51M - $100M - 30.2%- $101M - $200M - 23.7%- $201M - $300M - 24.5%- $301M - $500M - 13.7%

- $5M - $50M - 49%- > $50M - $100M - 12%- > $100M - $200M - 7%- > $200M to $500M - 18%- > $500M - 11%

* 3% of Canadian deals had a redacted or indeterminable deal size.


Earnouts

Indeterminable

Other

Combination ofRevenue & Earnings

Earnings/EBITDA

Revenue

7%

53%

0%

33%

12%

13%

19%

6%

38%

25%

8%

31%

0%

23%

38%

Deals in 2018

Deals in 2016

Deals in 2014*

* Percentages reported for 2014 exceed 100% as one agreement used more than one metric.


North American Comparison of Financial Provisions

US 2017 Deal Points Study* Canadian 2018 Deal Points Study

Deals with Post-Closing

Adjustments

86%

(86% in 2015 US study)(85% in 2013 US study)

72%

(73% in 2016 study)(70% in 2014 study)

Working Capital Adjustment

Metric

95%


83%

(70% in 2016 study)(70% in 2014 study)

Buyer Prepares First Draft of

Closing Balance Sheet

95%


47%**

(76% in 2016 study)(61% in 2014 study)

Methodology – GAAP

Consistent with Past Practices

36%(35% in 2015 US study)(45% in 2013 US study)

17%**(38% in 2016 study)(39% in 2014 study)

Deals with Earnouts 28%(26% in 2015 US study)

(25% in 2013 US study)

14%(17% in 2016 study)

(25% in 2014 study)

•The "2013 US study" refers to the 2013 Private Target Mergers & Acquisitions Deal Points Study released by the ABA Mergers & Acquisitions Committee in December 2013. The "2011 US study" refers to the 2011 Private Target Mergers & Acquisitions Deal Points Study released by the ABA Mergers & Acquisitions Committee in December 2011.•** Details regarding the closing balance sheet were not specified in 20 deals. This may account for the signifiant drop in these deal points.


Sandbagging

* For purposes of this Study, "benefit of the bargain/pro-sandbagging" is defined by excluding clauses that merely state, for

example, that Target's representations and warranties "survive Buyer's investigation" unless they include an express

statement on the impact of Buyer's knowledge on Buyer's post-closing indemnification rights.

INDEMNIFICATION

Anti-SandbaggingProvision Included

12%(14% in 2014 study)(15% in 2016 study)

Benefit of the Bargain / Pro-Sandbagging Provision Included*

22%(15% in 2014 study)(31% in 2016 study)

Silent66%

(71% in 2014 study)(54% in 2016 study)


North American Comparison of Sandbagging

US 2017 Deal Points Study Canadian 2018 Deal Points Study

Sandbagging Provisions Included 49%(51% in 2013 US study)(44% in 2015 US study)

34%(29% in 2014 study)(46% in 2016 study)

▪ Pro 42%(41% in 2013 US study)(35% in 2015 US study)

22%(15% in 2014 study)(31% in 2016 study)

▪ Anti 6%(10% in 2013 US study)(9% in 2015 US study)

12%(14% in 2014 study)(15% in 2016 study)

▪ Silence 51%(49% in 2013 US study)(56% in 2015 US study)

66%(71% in 2014 study)(54% in 2016 study)

Express Non-Reliance Provision

Included


30%(43% in 2014 study)(32% in 2016 study)

CAPS*

(Subset: deals with survival provisions)


* Caps generally applicable to contractual indemnification obligations; does not take into account different caps for specific

items (see "Cap Carve Outs").

Yes – Less thanPurchase Price

65%(60% in 2014 study)(62% in 2016 study)

Yes – Equal to Purchase Price

13%(19% in 2014 study)(18% in 2016 study)

Yes – But Not Determinable

16%(11% in 2014 study)(12% in 2016 study)

Silent6%

(10% in 2014 study)(8% in 2016 study)


North American Comparison of BasketsUS 2017 Deal Points Study Canadian 2018 Deal Points Study

No Basket 2%(4% in 2013 US study)(2% in 2015 US study)

20%(8% in 2014 study)(9% in 2016 study)

Deductible 70%(59% in 2013 US study)(65% in 2015 US study)

30%(36% in 2014 study)(41% in 2016 study)

"First Dollar" 26%(32% in 2013 US study)(26% in 2015 US study)

44%(50% in 2014 study)(45% in 2016 study)

Combination (Threshold &

Deductible)


7%(6% in 2014 study)(5% in 2016 study)


Governing Law

Ontario40%

(52% in 2016 study)(43% in 2014 study)

Alberta24%

(26% in 2016 study)(17% in 2014 study)

Quebec10%

(3% in 2016 study)(7% in 2014 study)

British Columbia15%

(15% in 2016 study)(23% in 2014 study)

Other11%

(5% in 2016 study)(10% in 2014 study)


LearnedLessons


Lessons Learned

• Ability to leverage Kira and HighQ simultaneously

• Further standardization of questionnaire response options

(e.g., Other ____________) to facilitate aggregation

• Workflow automation and notifications

• Functionality of the Notes and Comments sections and editing of

responses

• Formatting of spreadsheet output

• Role of issue group leaders


Questions?

Thank you!

leveraging technology for the canadian private target ... · • extranet that streamlines...

Documents