CANADA Law and Practice Contributed by: Grant McGlaughlin, Sean Stevens and Claire Gowdy, Fasken
post-closing, as the tension of possible claims is effectively eliminated and shifted to the insurer. When first introduced, indemnification provisions in purchase agreements with representations and war - ranties insurance policies provided a “first recourse” against the sellers (often for a value not exceeding 0.5% of the enterprise value after having applied a deductible – often in the same amount) before access - ing the policy. As a result, sellers had some “skin in the game” before the policy would kick in. These limi - tations did not typically apply to fundamental or tax representations, or to fraud. There has been a trend in larger private equity trans - actions to have vendors benefiting from public com - pany-style representations and warranties packages with zero recourse after closing, with buyers relying entirely on the representations and warranties insur - ance policy. However, as the sellers’ market has cooled, mid-market private M&A and a majority of the large private M&A involving private equity investors has reverted to involve representations and warran - ties insurance with at least some vendor “skin in the game” and, in many cases, a re-emergence of reliance on vendor indemnification and escrows. 6.11 Commonly Litigated Provisions While litigation does arise in private equity M&A, Can - ada is not as litigious in approach as its neighbours south of the border. In Canada, the court can gener - ally order that the losing party pays the litigation fees to the winner, which in itself is a deterrent. The most common disputes pertain to purchase price disputes, where the dispute procedure is via an independently appointed accounting firm and is generally settled before recourse to the courts. Warranties and indem - nification clauses pertaining to third-party claims also lead to quite a bit of litigation (before the courts or an arbitrator, as opposed to an accounting firm).
This may be due to the relative number of attractive targets, the level of comfort the private equity has in the privatisation model and the additional level of com - plexity and uncertainty required in obtaining requisite shareholder approvals, and fiduciary out provisions elevating deal risk in public company transactions. The public-to-privates by private equity firms that do occur are rarely done on a hostile basis; generally, the negotiations are friendly and the transaction is ulti - mately supported by the target board (and significant shareholders, where possible). As public markets con - tinue to struggle in 2025, we expect continued oppor - tunistic acquisitions by private equity firms. In a public-to-private deal, the target board (or a spe - cial committee of the board formed of uninterested members in the transaction) is a key actor in the negotiation process. The committee’s recommenda - tion, and the board’s ultimate recommendation, to the company shareholders, together with fairness opinions (and formal valuations, where required) are essential to getting these deals across the finish line. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers Holdings of more than 10% of the equity of a pub - lic company in Canada trigger the filing of an early warning report, which provides public disclosure of the shareholdings of the holder. Holders of more than 10% of the equity of a public company in Canada are considered “insiders”. An early warning report con - sists of the dissemination of a press release and the filing of an early warning report form on the issuer’s profile containing prescribed information on SEDAR (the System for Electronic Document Analysis and Retrieval at www.sedar.com – the website used by Canadian reporting issuers to file public securities documents with the Canadian Securities Administra - tors). Crossing the 10% equity holding threshold of a public company also requires concurrent insider report fil - ings on SEDI (the System for Electronic Disclosure by Insiders at www.sedi.ca – the browser-based service for the filing and viewing of insider trading reports and required by the Canadian provincial securities regula - tors). An insider report outlines the current holding of insiders of an issuer. Insider reports are typically
7. Takeovers 7.1 Public-to-Private
Private equity companies consider both public and private targets in Canada, but there is considerably more volume in private company targets than public.
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