Leveraging Technology for the Canadian Private Target Mergers & - PowerPoint PPT Presentation

Osler, Hoskin & Harcourt LLP Leveraging Technology for the Canadian Private Target Mergers & Acquisitions Deal Points Study ABA MARKET TRENDS COMMITTEE MEETING André Perey Natalie Munroe March 2019

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Background

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Previous Studies • Manual review of acquisition agreements • Complete questionnaires in Word (100 acquisition agreements = 1,000 Word documents) • Compile information from Word documents in Excel • Aggregate and produce report

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Leveraging Kira Systems and HighQ

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY • • A software that analyzes and Extranet that streamlines extracts certain information collaboration, legal service from documents delivery, legal operations, client engagement and much • Enhances legal due diligence more • Plan, organize, track and complete work more efficiently and intelligently

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Kira Systems • Set up a worksheet for each questionnaire.

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Kira Systems

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Kira Systems • All worksheets were applied to each acquisition agreement

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Kira Systems • For each worksheet, exported the information extracted in Kira and uploaded to HighQ

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • Two main tabs in HighQ: Questionnaires and Results

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • Each questionnaire was built as an interactive questionnaire in HighQ • As a reviewer, you would only see the folder for the questionnaire assigned to you

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • Once you enter the folder, you are taken to the first acquisition agreement • The questionnaire is on the right-hand side

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • After the general information, reviewers answer the specific questionnaire

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • To ensure that the review could be tracked, reviewers would indicate by checkmark once their review was complete • We included notes boxes to give reviewers an ability to communicate with other reviewers

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • The “Results” tab shows the results from the review of each questionnaire for each acquisition agreement

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY HighQ • The results were exported to Excel and aggregated in order to generate the study results

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Deal Points Study

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Private Target M&A Deals – North American Comparison US 2017 Deal Points Study Canadian 2018 Deal Points Study Years Deals which closed in 2016 and H1 2017 Deals signed in 2016 and 2017 Number of Deals 139 91 Three Principal Technology Oil & Gas - - Industries Health Care Industrial Goods & Services - - Construction & Materials Health Care/Food & Beverage - - Deal Sizes* - $30M - $50M - 7.9% - $5M - $50M - 49% - $51M - $100M - 30.2% - > $50M - $100M - 12% - $101M - $200M - 23.7% - > $100M - $200M - 7% - $201M - $300M - 24.5% - > $200M to $500M - 18% - $301M - $500M - 13.7% - > $500M - 11% * 3% of Canadian deals had a redacted or indeterminable deal size.

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Earnouts Deals in 2018 Deals in 2016 Deals in 2014* 38% 25% Revenue 12% 23% Earnings/EBITDA 38% 33% 0% Combination of 6% Revenue & Earnings 0% 31% 19% Other 53% 8% 13% Indeterminable 7% * Percentages reported for 2014 exceed 100% as one agreement used more than one metric.

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY North American Comparison of Financial Provisions US 2017 Deal Points Study* Canadian 2018 Deal Points Study 86% 72% Deals with Post-Closing (86% in 2015 US study) (73% in 2016 study) Adjustments (85% in 2013 US study) (70% in 2014 study) 95% 83% Working Capital Adjustment Metric (83% in 2015 US study) (70% in 2016 study) (91% in 2013 US study) (70% in 2014 study) 95% 47%** Buyer Prepares First Draft of Closing Balance Sheet (87% in 2015 US study) (76% in 2016 study) (91% in 2013 US study) (61% in 2014 study) 36% 17%** Methodology – GAAP (35% in 2015 US study) (38% in 2016 study) Consistent with Past Practices (45% in 2013 US study) (39% in 2014 study) Deals with Earnouts 28% 14% (26% in 2015 US study) (17% in 2016 study) (25% in 2013 US study) (25% in 2014 study ) • The "2013 US study" refers to the 2013 Private Target Mergers & Acquisitions Deal Points Study released by the ABA Mergers & Acquisitions Committee in December 2013. The "2011 US study" refers to the 2011 Private Target Mergers & Acquisitions Deal Points Study released by the ABA Mergers & Acquisitions Committee in December 2011. • ** Details regarding the closing balance sheet were not specified in 20 deals. This may account for the signifiant drop in these deal points.

INDEMNIFICATION LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Sandbagging Anti-Sandbagging Provision Included 12% Silent (14% in 2014 study) (15% in 2016 study) 66% (71% in 2014 study) (54% in 2016 study) Benefit of the Bargain / Pro- Sandbagging Provision Included* 22% (15% in 2014 study) (31% in 2016 study) * For purposes of this Study, "benefit of the bargain/pro-sandbagging" is defined by excluding clauses that merely state, for example, that Target's representations and warranties "survive Buyer's investigation" unless they include an express statement on the impact of Buyer's knowledge on Buyer's post-closing indemnification rights.

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY North American Comparison of Sandbagging US 2017 Deal Points Study Canadian 2018 Deal Points Study 49% 34% Sandbagging Provisions Included (51% in 2013 US study) (29% in 2014 study) (44% in 2015 US study) (46% in 2016 study) ▪ Pro 42% 22% (41% in 2013 US study) (15% in 2014 study) (35% in 2015 US study) (31% in 2016 study) ▪ Anti 6% 12% (10% in 2013 US study) (14% in 2014 study) (9% in 2015 US study) (15% in 2016 study) ▪ Silence 51% 66% (49% in 2013 US study) (71% in 2014 study) (56% in 2015 US study) (54% in 2016 study) 55% 30% Express Non-Reliance Provision (43% in 2013 US study) (43% in 2014 study) Included (40% in 2015 US study) (32% in 2016 study)

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY CAPS* (Subset: deals with survival provisions) Silent Yes – But Not 6% Determinable (10% in 2014 study) 16% (8% in 2016 study) (11% in 2014 study) (12% in 2016 study) Yes – Equal to Purchase Price 13% (19% in 2014 study) (18% in 2016 study) Yes – Less than Purchase Price 65% (60% in 2014 study) (62% in 2016 study) * Caps generally applicable to contractual indemnification obligations; does not take into account different caps for specific items (see "Cap Carve Outs").

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY North American Comparison of Baskets US 2017 Deal Points Study Canadian 2018 Deal Points Study 2% 20% No Basket (4% in 2013 US study) (8% in 2014 study) (2% in 2015 US study) (9% in 2016 study) 70% 30% Deductible (59% in 2013 US study) (36% in 2014 study) (65% in 2015 US study) (41% in 2016 study) 26% 44% "First Dollar" (32% in 2013 US study) (50% in 2014 study) (26% in 2015 US study) (45% in 2016 study) 2% 7% Combination (Threshold & (5% in 2013 US study) (6% in 2014 study) Deductible) (7% in 2015 US study) (5% in 2016 study)

LEVERAGING TECHNOLOGY FOR THE CANADIAN PRIVATE TARGET MERGERS & ACQUISITIONS DEAL POINTS STUDY Governing Law Alberta Ontario 24% 40% (26% in 2016 study) (52% in 2016 study) (17% in 2014 study) (43% in 2014 study) British Columbia 15% (15% in 2016 study) (23% in 2014 study) Quebec Other 10% 11% (3% in 2016 study) (5% in 2016 study) (7% in 2014 study) (10% in 2014 study)