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

Last week, we posted an article summarizing the key findings in the American Bar Association's (ABA) recently published 2014 Canadian Private Target M&A Deal Points Study regarding financial provisions and pervasive qualifiers.

As previously noted, the study analyzed 60 acquisition agreements of private targets by public companies, covering transactions that were signed in 2012 and 2013.

In this post, we have summarized the study's key findings in respect of conditions of closing and indemnification. These results 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.

Conditions to closing

  • For transactions with a deferred closing, 74% of deals required the target's representations and warranties to be true at closing only (down from 82% in 2012 but consistent with the 2010 study at 71%). 25% of transactions surveyed required the representations to be true both at the time of signing and at the time of closing, and only 1% required the representations and warranties to be true only at the time of signing.
  • The most common standard of accuracy for the target's representations and warranties at the time of signing were that they be true in all material respects (67%). By contrast, at closing, the most common bring down standard was that the seller's representations and warranties are accurate, except where the inaccuracies would not reasonably be expected to have an MAE at 43%, followed by "accurate in all material respects" at 36%. The following table summarizes the 2014 study's findings with respect to the standard of accuracy of the target's representations and warranties:
  Standard at signing Bringdown standard
(at closing)
"Accurate in all material respects" 67% 36%
"Accurate in all respects" 13% 23%
"Accurate, except where inaccuracies would not reasonably be expected to have a MAE" 20% 43%
  • One significant cross-border difference between transactions surveyed the 2014 Canadian Deal Point Study and the ABA's 2013 U.S. based counterpart relates to the "double materiality scrape". In the Canadian study, only 18% of transactions surveyed contain language carving out double materiality qualifiers. In the U.S., that proportion is reversed, with 86% of transactions carving out double materiality qualifiers in the bringdown.
  • The requirement to deliver a legal opinion (non-tax) was less prevalent in recent transactions with only 40% of deals requiring such an opinion (compared to 55% in 2012 and 56% in 2010).


Indemnification periods have been decreasing

  • There appears to be a trend towards shortening the survival period of representations and warranties and the timeframes within which general claims may be asserted. The most common survival period across deals surveyed is now 18 months (29%), which increased significantly in frequency over the 2012 (12%) and 2010 (14%) deal studies. The next most common survival period is 24 months (23%), which was the most common survival period in the 2012 (47%) and 2010 (31%) deal studies. Following closely is the 12 month survival period (21%), which shows a slight increase from 2012 (17%) and 2010 (18%).
  • The most common carve outs to survival/time to assert claims continue to be in respect of taxes (76%), fraud (66%), due authority (55%) and due organization (51%).

Sandbagging – the Canadian experience continues to differ from the U.S.

  • Canadian transactions continue to be significantly less likely than their U.S. counterparts to contemplate "sandbagging" provisions, wherein a claimant specifically is not (pro-sandbagging) or specifically is (anti-sandbagging) precluded from indemnification or other remedy based on a representation, warranty, covenant or obligation which the claiming party knew to be untrue or breached prior to the closing date. Only 29% of Canadian transactions studied contemplated "sandbagging", (whether pro -or anti), with the remaining 71% silent on the matter. These proportions are largely consistent with the 2012 and 2010 deal point studies (at 67% and 69% respectively). Of transactions that did contemplate sandbagging language, the proportion of pro and anti-sandbagging clauses were roughly split down the middle, with 15% containing pro sandbagging language and 14% containing anti-sandbagging language.
  • By contrast, the ABA's U.S. 2013 deal points study indicated that sandbagging provisions were included in just over half of the deals studied (51%), of which the large majority, 41% contained pro sandbagging provisions, and only 10% contained anti-sandbagging provisions.

Indemnification baskets remain common, but there is a trend towards more carve-outs

  • The use of indemnification baskets continued to be prevalent in the 2014 study. 50% of all transactions surveyed contained a "first dollar" basket which was triggered once a certain threshold was passed (down from 59% in 2012, but higher than the 40% in the 2010 study). A further 36% contained a deductible concept (up from 14% in 2014 and 29% in 2010). 6% of all deals had a combination of "first dollar" and a deductible, while 8% had no indemnification basket whatsoever.
  • Fewer transactions in the 2014 study had a deductible or "first dollar" threshold below 0.5% of the transaction value. 42% of baskets were 0.5% or less of the transaction value in 2014, which was down from 52% in the 2012 study and 50% in the 2010 study. The mean deductible as a percentage of transaction size was 0.73% in the 2014 study (compared with 1.0% in 2012 and 1.76% in 2010), and the mean "first dollar" threshold as a percentage of transaction value was 0.96% (compared with 0.43% in 2012 and 0.75% in 2010). 72% of all transactions surveyed had a first dollar or deductible basket value of 1% of transaction value or lower.
  • The 2014 report shows a continuing trend towards the use of carve outs from the liability baskets. The most common carve outs are for the seller's fraud (48%), breach of representations related to due authority (32%), due organization (30%) and taxes (30%). Increases were in the order of 10-15% over the 2012 study in each case.

Liability caps continue to decrease but remain significantly higher than in the U.S.

  • 90% of the transactions surveyed in the 2014 study had some form of overall cap on liabilities. Notably, the overall amount of the cap continues to decline. In 2014 only 25% of the transactions with a determinable cap had a liability cap equal to the purchase price (compared to 40% in 2012 and 45% in 2010. The mean and median amount of the liability caps were 49% and 40% respectively. Despite this declining trend, as compared to the 2013 U.S. private target deal point study, the average cap amount (as a percentage of transaction value) remains considerably higher in Canada. Whereas in the U.S. 89% of deals had a cap of 15% or lower, with the most frequent range being less than 10%, in Canada, only 23% of transactions had a cap of 15% or lower, and 42% of transactions had a liability cap between 50% and 100% of the purchase price.

Two of Norton Rose Fulbright's Toronto partners helped produce the 2014 ABA study. Troy Ungerman, co-chair of Norton Rose Fulbright's Canadian mergers and acquisitions team, was an Issue Group Leader and Michael Caruso was a member of the Working Group. The 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.

Similar Articles
Relevancy Powered by MondaqAI
Stikeman Elliott LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Stikeman Elliott LLP
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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