Inbound M&A in Canada: Trends in Europe and the UK

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Since mid-2020, the global M&A market has seen a flurry of trading activity. In this episode of our Blakes Sound CompanyThe partners Michael Kariya and Cassandra Brown provide an overview of inward investment trends from Europe and the UK and the impact of regulations on foreign investment in Canada.



Jordan: Hi, I’m Jordan Virtue.
Nathan: And I’m Nathan Kanter, and this is our first episode as Blakes Sound Company.
Jordan: That’s right, Nathan. It was time to move from a COVID-focused podcast to a podcast with a broader reach.
Nathan: Today’s episode of Blakes Sound Company will focus on mergers and acquisitions and foreign investment, two areas that have seen a lot of activity and change over the past two years.
Jordan: To tell us more about these latest trends, we are joined by Michael Kariya, M&A Partner from our London, UK office, and Cassandra Brown, Competition and Foreign Investment Partner in Toronto.
Jordan: Michael, the global M&A boom that began in mid-2020 has driven record activity during the pandemic. What do you see in terms of European investment in Canada?
Michael: Yes, so after a brief lull in M&A activity at the start of the pandemic, as you note, the period from mid-2020 to date has been a period of sustained and truly frantic trading activity. In 2021, the total value of deals, the volume, have reached all-time highs, and unsurprisingly we’ve seen strategic and financial investors from the UK and continental Europe, you know, take a hard look at some Canadian companies from quality. And since the competition for quality assets is already exceptionally high globally, developed and politically stable economies like Canada’s have really benefited from this need for investors to deploy capital.
Jordan: Are there any sectors in Canada that are particularly hot?
Michael: So the technology, software, and life sciences sectors have really made up a big chunk of inbound investment into the Canadian market during the pandemic. In Canada, mid-market deals are the driving force behind the Canadian M&A market and many high-growth companies in the industries I just mentioned reside in this space, often founder-led and were, you know , really well positioned to execute M&A solutions with the right foreign investor and with the result that, you know, they were able to extend their reach beyond Canadian borders.
Jordan: Do you think the momentum of the pandemic boom will continue?
Michael: There is no doubt that the amount of private capital seeking to be deployed continues to reach unprecedented heights. You know, there’s that on the one hand, but we can’t ignore various macroeconomic forces looming on the horizon, all of which could potentially dampen the M&A activity that we’ve seen over the past two years during the pandemic. You know, just as an example, many of the pandemic-era government stimulus programs are coming to an end, interest rates are starting to rise, and inflation is reaching levels that many of us don’t. haven’t seen in our professional lives. . And finally, geopolitical risks, including the war in Ukraine, all create new sources of economic uncertainty and market volatility that could dampen trading.
Jordan: What are the key trends and deal structuring issues you encounter when acting for European clients in Canadian private M&A transactions?
Michael: I will cover three of them:
  • First, payout indemnities are on the rise in Canada, perhaps unsurprising in times of economic uncertainty and market volatility. These are the types of conditions that give rise to valuation gaps between buyers and sellers.
  • Second, we are seeing an increase in “non-recourse” transactions in private transactions in Canada. Thus, a situation where the selling side is not obligated to pay compensation, so the buyers only remedy is fraud.
  • And third, on cross-border transactions from Europe to Canada, we typically spend a lot of time structuring the turnover of equity and management incentive teams, and in Canada, the only tax incentive program beneficial to management is a stock option plan.
Nathan: Cassie, can you elaborate on Michael’s comments from a foreign investment perspective?
Cassandra: Yes, of course, so the UK and Europe have traditionally been a huge source of inbound investment into Canada. It’s right behind, of course, the United States. One thing, unsurprisingly during the pandemic, Canadian natural resource companies were less popular targets for foreign investment. That makes sense when you look at the kind of weak valuation dip that happened at the start of the pandemic in this sector. And from a foreign investment perspective, that was accompanied by the Canadian government issuing a special advisory that kind of warned foreign buyers about predatory investment. With respect to Mike’s comments about the kind of potential macroeconomic headwinds that could affect overall levels of business activity going forward, you know, we’ve actually already started to see signs, from a regulatory view, of somewhat lower levels of mergers and acquisitions in 2022 So, for example, the Competition Bureau has reviewed about 31% fewer deals year-to-date this year compared to 2021 and nearly 40% fewer transactions compared to this point in the year in 2020. So regulator activity is kind of a proxy, sometimes, for overall levels of transaction activity, and we’ve seen from this point a slight slowdown so far this year compared to the previous two years.
Nathan: Are there any key trends you can share with us?
Cassandra: Yeah, so I think one thing that’s sort of grown in the last few years is the free space I guess that national security risks and concerns take on a transaction . This is not limited to Canada. I think it’s sort of a global trend. But, just for example, in 2020 to 2021, which is the last year you can get government data on this, there were as many national security reviews and national security screenings as there were over the previous four years. So, having said that, we don’t see the national security activity focusing on investment from the UK and Europe. Unsurprisingly, many of the national security screens and comprehensive reviews relate to transactions where investors hail from elsewhere in Asia, many from China. There are other jurisdictions, even jurisdictions that historically haven’t focused on national security, that are kind of building their internal capacity to look at transactions from a national security perspective. One of the most notable is the UK. So they had a law that recently came into effect, and it’s very broad in scope, and we’ve even seen cases where it could apply to Canadian companies that do mergers and acquisitions solely on the basis, sometimes, of industry they are in and the fact that they have customers in the UK, even if they do not have a physical presence in the UK
Jordan: Michael and Cassandra, thank you for joining us today to share your knowledge of the latest trends in mergers and acquisitions and foreign investment. A great way to kick off our first episode as Blakes Sound Company.
Nathan: Dear listeners, for more information about our M&A and Foreign Investment groups and our podcast, please visit
Jordan: Until next time, be well and stay safe.

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Our Blakes Sound Company podcast (formerly, Continuity) examines how changes in the Canadian legal landscape may impact businesses in our post-COVID reality and beyond. Lawyers in our offices discuss the unique challenges, risks, legal developments, opportunities and government policies you need to be aware of. We also cover diversity and inclusion and other social responsibility topics that matter to you.

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Blakes periodically provides interested persons with material on our services and on developments in the law. This article is provided for informational purposes only and does not constitute legal advice or an opinion on any matter. Blakes will be happy to provide additional details or guidance on specific situations if desired. For permission to reprint articles, please contact Blakes Marketing at 416-863-4345 and [email protected] © 2019 Blake, Cassels & Graydon LLP.

Blakes periodically offers documents on trends and new facts in the legal field to those who want them. This article is for informational purposes only and does not constitute legal advice or an opinion on any subject. We will be happy to provide you with additional details or advice on specific situations if you wish. For permission to reproduce articles, please contact Blakes Marketing and Communications at 514-982-4026 or by email at [email protected]. © 2019 Blake, Cassels & Graydon LLP

Mary I. Bruner