Back to Basics: Acquisition Structures for Canadian Public and Private M&A

Whether you are an investor, business owner or advisor, having an understanding of common structuring considerations is an important foundational element when contemplating the purchase or sale of a Canadian public or private company.

This article provides a high-level summary of the main acquisition structures used in Canadian public and private merger and acquisition (“M&A”) transactions. With respect to public M&A, we discuss common structures, including takeover bids, amalgamations and plans of arrangement. For private transactions, we discuss the differences between asset deals and share purchases.^[1]

Public Company Acquisition Structures

Takeover Bids

A takeover bid (analogous to a U.S. “tender offer”) (“TOB”) is a transaction in which the purchaser makes a public offer directly to the shareholders of a target corporation to purchase outstanding voting or equity securities of a class that would result in the purchaser (and its joint actors) holding 20% or more of the securities of that class. The principal statutory instrument regulating TOBs in Canada is National Instrument 62-104 – Take-Over Bids and Issuer Bids (“NI 62-104”).

Takeover bids are typically the acquisition structure implemented for an unsolicited bid or where the board of directors of the target and the purchaser cannot negotiate the M&A transaction (i.e., “hostile bid”). When used in either of those circumstances, NI 62-104 requires a mandatory minimum bid period (generally, 105 days). If the TOB starts or becomes a negotiated transaction (i.e., a “friendly bid”), then NI 62-104 permits a mandatory minimum bid period of 35 days, which is much shorter than the typical timeline for an amalgamation or plan of arrangement and is one of the potential benefits of a TOB over those structures. NI 62-104 requires that all shareholders of the same class be treated equally, including offering each shareholder the same price per share and ensuring there are no collateral benefits to particular shareholders. NI 62-104 requires a target company’s board of directors to respond to a TOB within 15 days of the date of the TOB with their recommendation to shareholders on whether or not to accept the TOB.

When implementing a TOB, purchasers can offer cash, shares or other forms of securities (or a combination) as consideration to the shareholders and can also offer shareholders a choice of consideration if desired by the purchaser. If shares or other securities of the purchaser form part of the consideration, prospectus-level disclosure of the purchaser will be required in the takeover bid circular, with substantially less disclosure required if the consideration for the TOB is cash only. The TOB circular is the principal transaction and disclosure document containing the terms and conditions of the offer.

To gain effective control of the target, the purchaser must typically acquire more than 50% of the shares subject to the TOB, excluding those owned by or under the control or direction of the purchaser. In many TOBs, the purchaser will often condition the bid on receiving at least 66 2/3% of the shares to permit a second-step acquisition – typically a subsequent amalgamation – to acquire 100% of the target. For purchasers, it is important to recognize that if the bid is to be paid partially or fully in cash, adequate financing arrangements must be made prior to the bid being launched (i.e., no financing condition is permitted), though there can be some reasonable conditionality to the financing arrangements.

Amalgamation

An amalgamation is a statutory procedure under Canadian corporate law where two or more corporations are combined into a single entity. Unlike a merger under U.S. law, a Canadian amalgamation does not include the concept of a surviving corporation, and none of the amalgamating corporations cease to exist upon amalgamation; instead, two or more corporations continue as a single corporate entity, with the amalgamated corporation possessing all of the property, assets, rights and liabilities of each of the amalgamating corporations. 

In the public M&A context, an amalgamation is typically structured as a negotiated or “friendly” acquisition in which the purchaser and the board of directors of the target company agree to be acquired, with the purchaser acquiring all outstanding shares of the target company as a consequence of the transaction. Shareholder approval thresholds are governed by applicable corporate statutes (e.g., the Canada Business Corporations Act or equivalent provincial legislation) and generally require approval by at least two-thirds (66 2/3%) of votes cast by shareholders present in person or by proxy at a special meeting, subject to pre-existing agreements between shareholders. The circular, which will contain prospectus-level disclosure where securities of the purchaser form part of the consideration, is the principal transaction disclosure document but, unlike a TOB, describes the amalgamation and the other terms of the transaction rather than being the offer itself.

The amalgamation structure may be favoured for its simplicity and predictability, though it lacks the flexibility of a plan of arrangement and does not afford the purchaser an exemption under U.S. securities laws for the issuance of securities if all or a portion of the consideration for the amalgamation includes securities, as is available with a plan of arrangement. Compared to a plan of arrangement, an amalgamation is typically more cost-effective and faster to implement since it does not require court involvement. This makes amalgamations an attractive option in friendly transactions where the deal, particularly a cash deal, is relatively straightforward and no complex restructuring steps are involved (e.g., non-contractual adjustments to securities of the target company).

Plan of Arrangement

A plan of arrangement is a court-supervised transaction structure under Canadian corporate law that permits greater flexibility than a traditional amalgamation, though many plans of arrangement include an amalgamation as a step in the plan. It is frequently used in public M&A transactions involving multiple steps, asset transfers, internal reorganizations, non-contractual adjustments to securities of the target company (e.g., paying the “in the money” amount where the terms of the securities don’t provide for that opportunity), tax-driven structuring elements and where all or a portion of the consideration for the acquisition includes securities of the purchaser. Like an amalgamation, plans of arrangement generally require approval by at least two-thirds (66 2/3%) of votes cast by shareholders present in person or by proxy at a special meeting and require a circular, which is generally similar in form and substance to a circular associated with an amalgamation. Transactions completed by way of a plan of arrangement can include conditions, including a financing condition, though financing conditions could reduce the attractiveness of the transaction to the target’s board of directors.

Distinct from an amalgamation, a plan of arrangement requires court approval – both an initial court order, typically approving the calling and conduct of the shareholders’ meeting, and a final court order, typically approving the fairness of the transaction. This court approval is the principal reason for the exemption from the registration requirements of U.S. securities laws.

The plan of arrangement is the most commonly implemented Canadian public M&A structure. For example, in a deal point study conducted in July 2024 by Practical Law Canada,^[2] more than 95% of the 51 public M&A transactions valued at over $20 million and surveyed were completed by way of a plan of arrangement. When considering implementing a plan of arrangement, its benefits (e.g., flexibility and U.S. securities law exemption) must be weighed against its costs (e.g., additional time and expense).

Private Company Acquisition Structures

Asset Purchase

In an asset transaction, the purchaser acquires all or selected assets and assumes all or selected liabilities of the target company. This structure permits the purchaser to choose which assets to acquire and liabilities to be responsible for, making it particularly attractive from a risk management perspective. Key legal considerations in asset transactions include third-party consents to assign contracts,^[3] the treatment of employees – who may need to be offered new employment arrangements because their employer changes in an asset deal, unlike in a share transaction – and which liabilities to assume. Purchasers may also be exposed to successor liability in certain regulatory or employment contexts, which is addressed in the relevant purchase agreement.

From a legal and commercial standpoint, asset transactions require careful diligence of assets to be acquired and liabilities to assume, with a thoughtful allocation of risk through representations and warranties, covenants, conditions, indemnities and purchase price adjustments. Holdbacks, escrows and earnouts^[4] are also frequently used to address valuation or contingent liability concerns.

Shareholder approval is not typically required under corporate law unless the disposition constitutes a sale of “all or substantially all” of the undertaking of the target. In such cases, corporate statutes generally require approval by at least 66 2/3% of votes cast by shareholders at a special meeting or approval by a written resolution signed by all shareholders.

Share Purchase

A share purchase involves the acquisition of all (or a controlling portion of) the issued and outstanding shares of the target company, directly from its shareholders. Unlike an asset purchase, legal title to the underlying assets and liabilities remains unchanged, absent a pre-closing reorganization, though third-party consents from parties such as key customers or landlords are often still required. Similarly, generally speaking, the employment of the target’s employees will continue without the need to offer new employment arrangements, though many purchasers ultimately do enter into new employment arrangements with employees.

In many transactions, all shareholders of the target will sign the share purchase agreement. Where that’s not practical or desired, often a shareholders’ agreement will permit certain shareholders to be “dragged,” (i.e., forced to sell their shares) irrespective of whether they sign the share purchase agreement.

Similar to asset purchase transactions, share transactions require careful diligence of all assets and liabilities, with similar risk allocation, valuation and means by which to address liabilities included in the relevant purchase agreement.

Conclusion

The selection of an optimal transaction structure in an M&A context is driven by a range of legal and commercial factors, including shareholder approval thresholds and associated disclosures, regulatory considerations, tax planning and the allocation of risk. While this summary addresses key threshold requirements and basic features of common public and private M&A structures, each transaction is context-specific and requires tailored legal and strategic advice.

The Capital Markets Group at Aird & Berlis LLP advises clients on M&A transactions on a day-to-day basis. If you have any questions on how to best navigate Canadian M&A or what is the appropriate deal structure for your transaction, please contact the authors or a member of the group.