This article is the second part of our private M&A deal study series which comprises six articles where we highlight guidance provided by the American Bar Association's 2025 private M&A deal point study and dig into some key aspects of a private M&A deal in Canada.
In this article, we dig into the preliminary steps of the M&A transaction process for a private M&A deal in Canada.
American Bar Association's 2025 study
The American Bar Association has recently released its 2025 study which analyzes 83 acquisition agreements signed in 2020, 2021 and 2022 (being years associated with the Covid-19 pandemic) for the sale and purchase of private Canadian entities. The study (the latest since 2018) is widely recognized as a leading resource in shedding light on the question ‘what is market?' with respect to deal terms in private M&A transactions governed by Canadian law.
The M&A transaction – preliminary steps
Deal protection
82 percent (up from 64 percent in the 2018 study) of the sample transactions in the 2025 study included terms creating exclusivity obligations to prohibit the seller from entertaining competing offers for an agreed exclusivity period. The exclusivity period is often 30 working days but can be longer. Exclusivity is usually negotiated at the beginning of the M&A transaction lifecycle and recorded in the heads of agreement, terms sheet, or letter of intent for the proposed transaction.
Due diligence
The main purposes of due diligence is to identify red flags that may result in the buyer not proceeding with the proposed transaction, and to identify liability risks that the buyer is best placed to allocate to the seller in negotiations over the terms and conditions included in the definitive transaction documents.
Thorough due diligence on the target entity and its business covering accounting, tax and legal aspects is fundamental to a successful transaction from the perspective of the buyer. Due diligence should commence early on in the transaction lifecycle. If the parties are considering representation and warranty insurance as part of the transaction, it is important that the nature and scope of due diligence meet the relevant insurers requirements including, for example, the form of report issued by the relevant professional advisor.
The travel restrictions and lockdowns associated with the Covid-19 pandemic likely inhibited the completion of due diligence to standards expected in non-pandemic times. Buyers who are unable to conduct thorough due diligence will likely seek greater protection from representations and warranties/indemnities set out in the definitive transaction documents. Accordingly, it is in the seller's interest to facilitate access to the target entity and its business for the buyer's due diligence.
About Mackrell International – Canada - Lindsay Kenney LLP is a full service business law firm with offices in Vancouver and Langley, BC and a member of Mackrell International. Mackrell International – Canada is comprised of four independent law firms in Alberta, British Columbia, Ontario and Quebec. Each firm is regionally based and well-connected in our communities, an advantage shared with our clients. With close relations amongst our Canadian member firms, we are committed to working with clients who have legal needs in multiple jurisdictions within Canada.
This article is intended to be an overview and is for informational purposes only.
