Law Times

PAGE 2 NEWS January 12, 2009 • Law Times M&A deals still flowing but in a buyer's market M BY ROBERT TODD Law Times erger and acquisition lawyers say deals are still fl owing in the midst of tight credit markets, but buyers now have the advantage and are calling on counsel to make sure agree- ments are airtight. "I think there's been a real shift to a buyer's market," says Torys M&A partner Sharon Geraghty. "We will see that even more in the year ahead." Torys recently published its "Top 10 Trends for 2009," which envisages an M&A market that, in many ways, has been turned on its head. Aaron Emes, another Torys M&A part- ner, says during the height of the easy-lend- ing markets, a target company that received an off er or decided it would seek acquisi- tion, would conduct an auction process and play bidders off one another to get the best possible off er, with the buyer taking on the bulk of the fi nancing risk. But the recent fi nancial downturn, says Emes, has seen a deterioration of credit mar- kets, which has made it tougher for private equity fi rms — which previously fuelled deals and squeezed out strategic buyers — to bor- row money. Th at's caused many purchases, like the now-defunct $32-billion BCE Inc. deal, to cave in, he says. "As people started seeing these deals shifting, and realized they couldn't get easy fi nancing anymore, there started to be a shift in the M&A market," says Emes. "Certainly the pendulum is now shifting to a market that is favourable to buyers now as opposed to sellers." With the bulk of deals coming from strategic buyers, Torys sees a number of trends emerging in 2009: • buyers will look to widen the scope of material-ad- verse-eff ect outs. For ex- ample, even if the company itself isn't threatened, clauses may be created to quash the deal based on general prob- lems within the industry; • buyers will insist their loan agreements are completely tied up upon signing a binding purchase agree- ment to ensure banks don't walk away before closing; massive, court-protected re- structurings, but that can't happen without some new money coming into the pic- ture, notes Geraghty. It's getting much harder to get fi nancing under those cir- cumstances, she says, which means they may have to sell assets under a tough negotiat- ing position. Geraghty also expects Sharon Geraghty • buyers are likely to seek stronger deal- protection terms. For example, forcing the seller to enforce standstills estab- lished during the auction process; and • buyers will require more forceful asset lockups, such as guaranteed controlling shares, to keep other buyers from coming into the picture. Emes adds to that list an expectation that buyers will seek exclusive negotiation agreements, and sellers that previously would have laughed off such requests will be more amenable. Th ese factors, notes Geraghty, beg the obvious question: why sell? "Th e sellers will be sellers that have to sell," she says. "Th at could be companies in dis- tress . . . and distress could come about in a number of ways. One way I think we will see is with companies with debt that they have to refi nance, for example, that want to restructure their debt and just aren't able to get refi nancing." In the past such quagmires often led to an infl ux of income trusts will come up for sale near- ing the end of 2009, with tax breaks for such entities ending in 2011. Th e Torys lawyers also expect M&A activity to arise as governments spend public funds on in- frastructure projects to prop up the ailing economy, while at the same time selling off assets to replenish coff ers. Well-capitalized strategic buyers also will view the current economic situation as a good time to buy, she says. Emes adds that such buyers will benefi t from the abil- ity to off er shares when making purchases, and shareholders are likely to prefer stakes in a stronger company. So while there was unease among M&A lawyers as the capital markets shut down, says Geraghty, deals have not evaporated. She's confi dent that law fi rms can continue to gain meaningful revenue from mergers and acquisitions. "I'm always an optimist, so I'm probably in a sense not always the right person to ask, but I . . . see M&A shifting in nature," she says. "I do think there will be less, let's be frank, there's less, and I see that continu- ing into 2009 for sure." Th e shift to a buyers' market will force lawyers to change their approach. Th e To- rys lawyers say an immediate consequence of parties trying to back out of deals has been heightened attention to the wording of agreements. "As M&A lawyers, one of the things ev- eryone — not that they didn't spend time on it before, but maybe focusing even more on — are the dispute resolution provisions in these agreements," says Emes. Geraghty says clients have a new interest in these issues during negotiations. "I think lawyers will fi nd clients are going to be asking a lot more questions about 'what if,' and wanting their lawyers to be sure that they are protected in the way that they thought they would be if the deal goes a certain way," she says. "Nobody wants to be involved in liti- gation, so I think that avoiding the court- room, it was always in our mindset, but I think now clients have seen that deals have ended up in the courtroom, and they don't want to be one of those deals. Th ey want us to really make sure their documents are much tighter." Geraghty is optimistic the market will re- cover in time for 2010, while Emes suggests it will be a lot longer — if ever — before things return to their 2007 levels. But regardless, says Geraghty, this is a great time for M&A law- yers to gain knowledge. "Th is is going to be a time of great learn- ing for lawyers, and for bankers, because a diffi cult market is always an incredibly in- teresting market to learn in," she says. "And you will never forget it once you've been through a diffi cult market. You will never forget that deals can go sour, and that the markets can close down, and so learning LT Bentley's portfolio busy as ever in 2009 Continued from page 1 Crowns and police and defence counsel spending time adjourning cases, which we do a lot of and appear to do it very well, we spend time getting on with these issues," says Bentley. While the attorney general says he will continue his request for federal government action on the unifi ca- tion of family courts, he suggests progress on that issue seems unlikely. "Th e federal government is the one that really holds the key to that," says Bentley. "It's been fi ve years and we really haven't gotten them to move much over fi ve years." He plans to focus his attention instead on making the system more user friendly. "For me it really begins with the people who use the courts. It begins with the Ontarian who through circumstances, often very sad circumstances, needs to use the family court," says Bentley. "So my question is, when they go to court, when they go to a courthouse, are they going to fi nd the in- formation they need to fi nd to take the mystery out of the law? Do they fi nd a courthouse that they can get around in without the tour guide? Can they get to a counter that will answer their questions? Do they have a court system that they can understand? And can they get their case resolved as quickly as possible?" He points to the Justice Ontario online tool as one way the ministry has made the system easier to navi- gate. Th at initiative, launched last summer, includes a web site (www.attorneygeneral.jus.gov.on.ca/english/ justice-ont) and toll-free telephone number linking us- ers with court information in 173 languages. An initiative to update signage in courthouses also will aid that eff ort, says Bentley, adding proposed legislative changes to pension valuation also aim to speed the system. Th e AG says he plans to go to the profession and public in the year ahead for advice on improving the family courts. "When I travelled the province over the past year and spoke to people about criminal justice and civil justice, one thing they always wanted to talk about was family law. "Th ey wanted to talk about taking the paperwork out, reducing the time, reducing the cost. So we've started a little bit of that in our legislative initiative, now the question particularly in family law is, how do we reduce the time, cost, and complexity with family proceedings?" Th e AG off ered no new stance on the criminal bar's ongoing demand for an increase to the legal aid tariff . He notes the tariff has been raised 15 per cent over the past fi ve years. But with no increase between 1990 and 2003, many lawyers say that's not enough. "I'm going to certainly continue the work that I'm doing constantly to fi nd ways to strengthen legal aid," says Bentley. "It's no secret, it's been a challenge over the years for diff erent governments to strengthen legal aid." Bentley wouldn't specify his top priorities for the year ahead, but it's clear his portfolio will remain busy as ever in 2009. "You know, we've worked very hard on building safer communities, and a faster, more eff ective, more aff ordable justice system, and I will continue working on that," he says. "We're working hard on the initiatives that I've outlined, there will be lots more to say on those, and there are a number of very exciting initiatives that we're working on at the moment." LT Looking for an easier way to attract attention? it's easy. www.lawtimesnews.com JobsInLaw_sailing_half.indd 1 11/5/08 2:50:47 PM

• Cover
• M&As Alive
• Union Fines
• Focus On Insurance Law