Canada: ABA Publishes 2014 Canadian Private Target M&A Deal Points Study: Key Findings (Part I)

Last Updated: January 16 2015
Article by Matthew Bernardo

Most Read Contributor in Canada, December 2017

The American Bar Association (ABA) recently published its 2014 Canadian Private Target M&A Deal Points Study. The study was project of the Market Trends Subcommittee of the Mergers and Acquisitions Committee of the ABA and represents the third such study published by the ABA (previous studies were published in 2012 and 2010). In total, 60 acquisition agreements of private targets by public companies were analyzed, ranging in transaction value from (Canadian) $5.6 million to $5.8 billion. The 2014 study covers transactions that were signed in 2012 and 2013.

The results of this study offer valuable information and benchmarks for transactions involving a private target and provide useful comparative data points demonstrating notable trends from pervious iterations of the study as well as valuable comparisons against similar data points in the ABA's 2013 U.S. Private Target M&A Deal Points Study.

This blog post — the first of two posts — will summarize the 2014 study's key findings regarding financial provisions and pervasive qualifiers.

Financial provisions

Earnout metrics and timelines remain largely deal specific

  • 25% of the transactions surveyed in the 2014 study included some form of earnout mechanism, which continues an increasing trend over previous studies (in the 2012 study, 21% of deals surveyed had earnouts, and in the 2010 the figure was only 3%). Earnings based metrics (including EBITDA) were the basis for 33% of earnouts surveyed, and a further 12% of earnouts were based on the target business' revenues. Interestingly, more than half of the earnout deals surveyed (53%) used some "other" metric (including non-financial targets) as the basis for determining the earnout.
  • The length of earnout periods continues to show considerable variation between transactions. While the most common length of earn-out period was 12 months (33% of earnout transactions surveyed), 20% of earnout deals used a 36 month period, and in a further 20%, the earnout period was either 60 months or longer. Of note, in the 2014 study, no earnout periods were less than 12 months (compared to 12.5% in the 2012 study).

Buyers are reluctant to constrain their management discretion post-closing

  • One of the key tensions in an earnout is the conduct of the business post-closing. Whereas the seller is usually interested in seeing the business run in a manner consistent with historical practice (to have some comfort that the buyer will not take any actions which would jeopardize the earnout), buyers generally want the freedom to run the business as they see fit after closing. To that end, relatively few of the transactions surveyed contain express provisions protecting the sellers in an earnout. Only 20% of the agreements contained a covenant to run the business consistent with past practice after closing (compared with 23% in the 2012 study), and no agreement contained a covenant to run the business to maximize the earnout post-closing (compared with 8% in the 2012 study).
  • For the first time, the ABA study also included data on acceleration of earnouts upon a change of control of the purchased business. Only 7% of transactions surveyed expressly provided for an acceleration of an earnout upon a change of control. 73% did not provide for an acceleration and a further 20% were indeterminable.
  • Another new data point in the 2014 study surveys whether agreements contain an express declaimer of a fiduciary relationship with respect to earnout provisions. The answer appears to be a resounding no. None of the agreements containing earnouts surveyed contained a clear, express disclaimer, 20% were indeterminable, and 80% did not contain any such disclaimer.

Post-closing adjustments remain common and use of purchase price adjustment escrows creep up

  • At 73%, the prevalence of transactions containing post-closing adjustment provisions remained relatively stable in the 2014 study (2012 – 70%). The most common adjustment continued to be working capital (70% of transactions including an adjustment provision). The 2014 study showed a continuing trend towards the buyer preparing the closing balance sheet for the post-closing purchase price adjustment, with the buyer preparing the closing balance sheet in 61% of the deals studied, compared to 52% in 2012 and 29% in 2010.
  • The use of a separate escrow for closing purchase price adjustments is becoming increasingly common (23% of all transactions surveyed, versus 14% in 2012 and 10% in 2010) but still remains in the minority. For the subset of transactions where there was no separate purchase price adjustment escrow (77% of all deals), 24% expressly provided for a true-up payment from the indemnity escrow, 21% did not contemplate that purchase price adjustments would be paid out of the indemnity escrow, and 56% did not contain an indemnity escrow or holdback at all.

Pervasive qualifiers – material adverse effect

MAE carve-outs are becoming more common

  • Overall, 88% of the transactions studied contained a material adverse effect (MAE) definition (2012 83%, 2010 – 73%). Of the subset of deals which included an MAE concept, 77% incorporated a forward looking component into the definition (such as an event that could be reasonably expected to have an MAE). MAE definitions continue to overwhelmingly be defined without a reference to a specific dollar amount. In 2014, only 4% of deals with an MAE definition used a specific dollar amount to define materiality.
  • The inclusion of carve out language in MAE clauses continues its upward trend. Of the subset of transactions with an MAE definition, fully 83% contained some form of carve out (compared with 70% in 2012 and 60% in 2010). The most common carve outs from MAE clauses related to economic conditions (95%) and industry conditions (91%). Recent trends of note were:
    • An "Actions required by the agreement" MAE carve out was present in 61% of the cases, illustrating a continuing increasing trend over the previous studies (2012- 50%, 2010-33%)
    • Changes in law carve outs were present in 73% of deals, a modest increase over 2012 (67%) and a significant increase over the 2010 study (44%)
    • At 48%, financial market downturn carve outs were significantly less prevalent than in previous studies (2012-60%, 2010-70%).

Stay tuned for the second post in this series which we will publish next week, canvassing the ABA's key findings regarding conditions to closing and indemnification. The ABA study, which analyzes publicly available acquisition agreements for transactions signed in 2012 and 2013 ,is available to ABA members on the Market Trends Subcommittee webpage.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions