This article is the fourth 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 interim period and post closing covenants in the context of 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.
Interim period and post closing covenants
Interim period covenants
The interim period occurs between the date the sale and purchase agreement is signed and the completion date for the transaction. During the interim period the seller continues to control the target entity and operate the target entity's business.
91 percent (up from 87 percent in the 2018 study) of the sample transactions in the 2025 study required the target entity's business to be carried on in the ordinary course of business. The ‘ordinary course of business' is usually defined with reference to the immediately preceding 12 months. A slim 19 percent (no comparison data from the 2018 study) of the sample transactions made express exception for measures taken by the seller to respond to Covid-19 pandemic related matters.
Post closing covenants
47 percent (no comparison data from the 2018 study) of the sample transactions in the 2025 study included non-solicitation and/or non-compete provisions. Non-solicitation provisions prohibit the seller and persons related to the seller (e.g., the seller's management and shareholders) from soliciting customers, suppliers, employees and/or contractors from the target entity or its business. Non-compete provisions prohibit the seller and persons related to the seller (e.g., the seller's management and shareholders) from being involved in any capacity with any business and/or entity in competition with the target entity's business.
The applicable restraint periods are subject to negotiation between the parties but typically range between 12 and 36 months following completion of the transaction. These defensive provisions are common in transactions relating to businesses in the technology, manufacturing, transport, and logistics industries.
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.
