The ABA's deal points studies have been cited in numerous court decisions and are a leading resource in answering the dealmaker's most basic question: what's market? This article highlights some of the study's key findings and compares certain deal points to recent US studies.

The study addressed deals signed in 2021 and 2020, and several members of the Fasken team were involved in its preparation, including certain authors of this update.

Industry Sectors

The study shows that transactions in the mining and natural resource sector remained relatively steady at 36% of deals over prior studies and that cannabis transactions now account for 14% of deals (Canadian legalization of cannabis occurred in 2018). The oil & gas sector represented only 9% of deals (down from 26% in the 2017 study, 25% in the 2015 study and 29% in the 2013 study) and both the real estate (3% of deals) and technology (3% of deals) sectors were down from 6% and 7%, respectively, in the 2017 study.


Sixty percent of the Canadian public company targets considered by the study were listed on the Toronto Stock Exchange, while 31% were listed on the TSX Venture Exchange and 9% on the Canadian Securities Exchange.

Buyer Characteristics

The home jurisdiction of buyers was relatively consistent to prior studies in that Canadian buyers represented 62% of acquirers, with the United States at 20%, China at 3% and Australia at 3% (up from 1% in 2017 study). Strategic buyers made up 92%, while private equity buyers decreased to 8% from 13% in the 2017 (consistent with the 2015 and 2013 studies at 8% and 7%, respectively).

Representations and Warranties

The practice in Canada with respect to the "compliance with law" representation (of which 97% of deals in this study contain) appears to be moving towards the inclusion of notices of violation (now 73% - up from 61% in 2017 study) and notices of investigation (now 52% - significantly up from 23% in 2017). Buyers appear to be pushing back on knowledge qualifiers relating to the "compliance with law" representation (now 3% compared to 9% in both the 2017 and 2015), however, date restricted compliance of this representation is now up significantly (30% compared to 17% in 2017 study). Additional representations that are more common in the US are starting to appear more consistently in Canadian deals, such as the "Weinstein" representation of the target not being subject to any allegations of sexual or other unlawful harassment (14% of deals) and the now customary "anti-corruption" representation (92% of deals).

Conditions to Closing

There are some notable differences between Canadian and US practice in terms of closing conditions. The Canadian trend appears to be moving toward the US style of having a target's representations be accurate at both signing and closing (now 59%) instead of just at closing (41% - down from 64% in 2017 study). In the 2017 US study, in 71% of deals a target's representations had to be accurate at both signing and closing and 29% of deals had to be accurate only at closing. The distinction in Canada is that the practice now excludes certain representations from being accurate at signing (21% of deals compared to 38% of deals having all representations being accurate at signing).This is a significant increase from only 5% in the 2017 study and 2% in each of the 2015 and 2013 studies.

The standard for accuracy of representations in Canadian deals is moving towards the US market trend of material adverse effect (MAE). The study found that 92% of Canadian deals use the MAE standard (versus 62% in 2017), which is more in line with the US market (96% of deals). Canadian deals are also following the US trend of applying a different qualifier than MAE for the accuracy of the "capitalization" representation. Ninety-two percent of Canadian deals now use a different qualifier (up from 65% in the 2017 study), which is in line with 91% of US deals. Canadian public deals differ from their US counterparts in the formulation of a target's compliance with its covenants. Canadian deals are skewing towards a target having to perform in all material respects "each" of its obligations (44% as compared to 26% in the 2017 study and only 9% in the US) versus "all" of its obligations (56% as compared to 74% in the 2017 study and 90% in the US).

Perhaps a reflection of the frothy Canadian M&A markets in 2020 and 2021, the availability of buyer financing as a closing condition decreased significantly to 19% from 40% in the 2017 study.

MAE Definition

Although Canadian definitions largely track those in US agreements, there are some notable differences. Even though decreasing in prevalence, Canadians are still open to including "prospects" (down to 11% from 27% in the 2017 study, whereas US deals included "prospects" in only 1% of public deals). Negotiating "prospects" can get fairly animated, as the target will want to exclude on the basis that it is too vague and forward looking, giving the buyer an unreasonable right to walk away from a transaction. On the other hand, the buyer wants the definition to capture events or circumstances that have not yet, but may in the future, result in a materially adverse effect. US definitions of MAE are far more likely to include an adverse effect on a target's ability to consummate the transaction (68% of US deals include this language), whereas only 17% of Canadian deals include this concept (down from 30% in the 2017 study).

Deal Protection

An interesting trend in Canadian public M&A space during the active 2021 and 2020 study period is that even though buyers may have been willing to pay substantial premiums, pre-signing exclusivity periods were significantly longer than in the 2017 study period (median of 33 days versus 24 days in 2017). Also of note, "go-shop" provisions are much more common in the US (with 9% of US deals and only 3% in Canada).

The concept of a fiduciary exception to a target's recommendation covenant for "intervening events" is well established in the US public M&A market (90% in US study). In Canada, the trend appears to be following suit (albeit very slowly at 2% in the current study – up from 0% in the 2013 study). The "intervening event" is meant to capture changes in circumstances, facts or events occurring after the signing date that were either not known to the target board or were not reasonably foreseeable but do not relate to any "acquisition proposal". It will be interesting to see if this concept becomes more common in the Canadian public M&A space.

Overview of Deal Sample – Use with Caution

Notwithstanding the importance of the study, readers should be mindful of the nature of the sample used before applying it too broadly. The agreements reviewed are sourced from the System for Electronic Documents and Analysis and Retrieval (SEDAR) maintained by Canadian securities regulatory authorities for reporting issuers. As result, the study necessarily reviews a focused portion of transactions completed during the relevant time period and is limited to Canadian publicly traded targets. The latest study reviews a final sample of ninety-two agreements with a transaction size of over $25 million. Overall, the study is skewed towards smaller and mid-market deals (45% are under $250 million and 23% are under $100 million). That said, one of the biggest changes since the last Canadian study is the increase in deals between $1 billion and $5 billion (up to 19% from 12% in the 2017 study). The greater than $5 billion deal size category remained relatively steady at 3%. Not surprisingly, since the 2016 Canadian Securities Administrators take-over bid rule changes, which among other things lengthened the minimum bid deposit period from 35 days to 105 days (with an automatic ten days extension and minimum 50% tender condition), the number of deals structured as take-over bids remains low at two (same as in the 2017 study, while the 2015 study and the 2013 study had seven and seventeen, respectively). More importantly, many deal points are best resolved through an appreciation of the underlying reasonableness of each parties position or, in some cases, their negotiating leverage.

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.