The Innovation, Science & Economic Development Canada oversees merger reviews to determine whether a merger is likely to result in a substantial lessening or prevention of competition in Canada.
Determining the appropriate amount of funding to allocate for mergers and acquisitions (M&A) in Canada involves a careful assessment of various factors, including the specific characteristics of the target company, the strategic objectives of the acquiring company, and the prevailing market conditions. The methods of financing transactions in Canada typically include cash, debt (including seller financing), equity, or a mix of the foregoing. Canadian lenders and investors generally tend to be more risk-averse than those in other jurisdictions, and this should be taken into consideration by buyers when evaluating potential financing sources for potential transactions.
In addition, the financing structure for M&A transactions in Canada may be influenced by the nature of the deal, the regulatory environment, and tax considerations. Most mergers and acquisitions involving public companies in Canada are completed by way of a statutory plan of arrangement under the corporate law of the target’s jurisdiction. Plans of arrangement are typically completed pursuant to arrangement agreements negotiated between the bidder and the target. Plans of arrangement are subject to the approval of the target’s board and shareholders as well as court approval. Unlike a take-over bid, an arrangement can have a financing condition.
Furthermore, the taxation of cross-border mergers and acquisitions for Canada is an important consideration in determining the appropriate amount of funding to allocate for M&A transactions. A merger or acquisition involving shares of a Canadian company or its assets can be completed in a number of ways, depending on the type of consideration to be paid, tax and financing considerations, as well as corporate law and regulatory issues.
The appropriate amount of funding to allocate for mergers and acquisitions in Canada is determined based on a comprehensive assessment of the specific transaction, the financial position of the acquiring company, the nature of the target company, and the prevailing market and regulatory conditions. It is essential for companies to carefully evaluate the available financing options and consider the potential impact of taxation and regulatory requirements on the overall funding structure for M&A transactions in Canada.
According to PricewaterhouseCoopers (PwC) Canada, the M&A market activity in Canada has been in line with historical norms, and the appeal of M&A remains strong despite challenging times.
CFA Institute Enterprising Investor notes that Canada is experiencing a veritable M&A boom, with transactions rising 30% to more than 90 billion USD compared to the second quarter of 2022. These sources collectively indicate a robust and growing M&A landscape in Canada.
The industries seeing the most mergers and acquisitions (M&A) activity in Canada include the following:
1. Materials: This industry represents the largest number of transactions, accounting for 31% of the total number of M&A transactions in Canada.
2. Energy and Power: Companies in the energy and power sector are the second most active acquirers, accounting for 14.7% of transactions.
3. High Technology: High technology companies are the third most frequent industry in terms of consolidation, representing 12.1% of all M&A deals.
These industries have been prominent in M&A activity in Canada, reflecting the diverse nature of the country’s economy and the ongoing consolidation and growth within these sectors.
Companies in Canada typically finance mergers and acquisitions (M&A) using the following methods:
1. Cash: Cash remains a primary method of financing M&A transactions in Canada. Companies may use their cash reserves or raise additional funds to finance acquisitions.
2. Debt: Debt financing, including bank loans and bond issuance, is commonly used to fund M&A transactions. Canadian lenders and investors tend to be more risk-averse, and the use of debt financing should be evaluated in light of the prevailing market conditions and interest rates.
3. Equity: Companies may raise equity capital through private placements or public offerings to finance M&A activities. Equity financing provides companies with the necessary funds to pursue strategic acquisitions and expansion opportunities.
4. Seller Financing: In some cases, the seller of a business may provide financing to the buyer, allowing the buyer to complete the acquisition. Seller financing arrangements can be structured in various ways to facilitate the transaction.
5. Mix of the Above: Companies often use a combination of cash, debt, and equity to finance M&A transactions, depending on the specific circumstances of the deal and the company’s financial position.
It is important to note that Canadian lenders and investors tend to be more risk-averse than those in other jurisdictions, and the cost of debt financing and lender diligence are factors that influence the financing landscape for M&A transactions in Canada.