In late May 2020, BDO Canada and Fasken hosted a conversation with leading private equity (PE) firms on the slumping market conditions around the COVID-19 crisis. The panel identified two discrete steps in the PE response:

  1. Navigating current market conditions
  2. Emerging from these conditions to thrive

The webinar discussion featured Chad Danard of TriWest Capital Partners, Sameer Patel of Angeles Equity Partners, and Ted Mocarski of Novacap.

1.     Navigating current market conditions

The PE-portfolio company relationship

PE investing is a relationship-driven business. During times of uncertainty, strong integration between the firm and portfolio company is especially critical. To lead portfolio companies through a pandemic, PE firms have found it helpful to increase the frequency of communication touchpoints with management teams. This allows them to proactively address market softness and liquidity constraints.

In the near term, companies and firms can expect to switch from offensive to defensive strategies. Instead of focusing on growth opportunities, PE firms will add value by leveraging their past experience in economic downturns and offering advice related to capital preservation.
Continue Reading Private Equity Point of View: Navigating Through, and Emerging From, the Crisis

On May 12th 2020 the Ontario Government not only extended the province’s declaration of emergencies, but also passed Bill 190, the COVID-19 Response and Reforms to Modernize Ontario Act, 2020 (Bill 190). Bill 190 makes slight, but significant, changes to many statutes to provide flexibility and relief to businesses and corporations at

Further to our earlier post discussing COVID-19 and Material Adverse Change (“MAC”) provisions in mergers and acquisitions agreements and the hearing held last week in connection with an application for the final order (“Final Order Application”) in respect of the proposed plan of arrangement (the “Arrangement”) involving Rifco Inc. (“Rifco”), an alternative auto financing company

Further to our earlier post discussing COVID-19 and Material Adverse Change (“MAC”) provisions in M&A Agreements that addressed the lack of relevant Canadian court decisions and the associated uncertainty in their interpretation, Canadian capital market participants are watching with keen interest the dispute between Rifco Inc. (“Rifco”), an alternative auto financing company that trades on

Against the backdrop of the COVID-19 pandemic and the novel challenges with which public companies around the world have been faced, Glass Lewis & Co. (“Glass Lewis”) and Institutional Shareholder Services Inc. (“ISS”), two established proxy advisory firms, have released updates in connection with how their voting policies will be applied in the course of the 2020 proxy season. The central themes from both advisors are that the COVID-19 pandemic is creating exceptional and difficult circumstances for Boards to navigate, and that the firms will have an increased flexibility in their approach to proxy contest reviews, with an emphasis on the quality of companies’ decision-making, disclosure and reasoning in respect of any changes to governance, compensation and capital structure.


Continue Reading Proxy Voting Guidelines in the COVID-19 Context

Introduction

The COVID-19 pandemic has raised a fundamental question for M&A participants: does the outbreak of COVID-19 and the impact on a business constitute a “Material Adverse Change” (referred to as a “MAC”) under merger agreements? The answer is important because if the pandemic is a MAC, then buyers can typically walk away from a deal without penalty or legal exposure. On the other hand, if it is not a MAC and buyers try to walk the seller can seek damages and/or seek specific performance of the agreement to force the buyer to close.

The law on MACs

In Canada there is virtually no case law on what constitutes a MAC, so most M&A practitioners look to the jurisprudence from Delaware for assistance (where there are several thoughtful and well-articulated decisions). Not wanting to empower buyer’s remorse at the expense of public shareholders, Delaware courts have been extremely reluctant to find a MAC to have occurred. In fact, there is only one case in which a Delaware court has found a MAC and allowed a buyer to walk from a merger agreement. See our previous blog post for reference.

Although difficult to establish, the case law has focused on two key elements: that the adverse change is “material” and “durationally significant.” Put differently, a MAC needs to be much more than a short-term drop and essentially reflect a fundamental change in the business to be acquired.
Continue Reading COVID-19 and Material Adverse Change Provisions in M&A Agreements

The Co-Directors of the U.S. Securities and Exchange Commission (SEC) Division of Enforcement recently issued a Public Statement emphasizing the importance of maintaining market integrity and following corporate controls and procedures in the context of the COVID-19 pandemic. According to them, in the current circumstances, corporate insiders are regularly learning new material non-public information that

On Monday, March 23, 2020, the Quebec government announced that as of midnight Tuesday, March 24, all non-relevant/non-essential businesses and commercial activity in the province will be on “pause” – essentially, shut down – until April 13. If you operate or own a business, this measure, together with Covid-19, will inevitably disrupt your supply chain and production process, will isolate your workforce, and, perhaps, negatively impact your financial forecasts.

This article examines if and how, under the laws in Quebec, a party to a contract could claim COVID-19 and/or the government shutdown of your business, as a force majeure allowing one to put an end to, or temporarily suspend, its contractual obligations.

The law in Quebec provides that, where an event is determined to be a force majeure, the debtor is released from performing its contractual obligations and from liability, in whole or in part and either temporarily or permanently. This legal provision may be modified by the terms of a contract by providing specifically for a force majeure clause allowing a party to be excused from the performance of its obligations, in whole or in part, or to suspend said performance because of the occurrence of some specified event or condition. Whether contained in a contractual clause or not, each situation must be assessed on a case-by-case basis to determine the effect of a given situation. Even if contained in a contract, clauses vary from one to another and must be carefully analysed. Clauses that are silent regarding pandemics, epidemics and other disease outbreaks are likely to be insufficient for a force majeure defense due to COVID-19. If, on the other hand, the force majeure clause clearly covers a pandemic such as COVID-19, parties seeking to invoke the provision will have a lower burden of establishing that the event was unforeseeable. In addition, the coronavirus may qualify as a force majeure event when broader wording such as “Act of God,” or “circumstances beyond a party’s reasonable control” is included in the contract.
Continue Reading COVID-19, Government order to shut down operations and Force Majeure Clauses. What Does It Mean? What Can You Do?

It is likely that a trend will emerge in the coming months of cancelled transactions leading to litigation as to whether the impact of the novel coronavirus (“COVID-19”) amounts to a “disaster” or a force majeure under various agreements. Standard underwriting agreements contain termination provisions, some of which may be triggered by COVID-19.

Institutional Investor Services (“ISS”) and Glass Lewis have released their updates to proxy voting guidelines for 2020. These guidelines shape the recommendations both bodies will give in reports concerning specific issuers which are often followed by institutional investors. For issuers with an institutional investor as a majority shareholder, these guidelines can be determinative