In Canada, mergers and acquisitions tend to be negotiated and friendly. One of the reasons for this is that many Canadian public and private corporations have one or more major shareholders whose support is essential for an acquisition to succeed.
One technique used in negotiated M&A transactions that has gained in popularity over the past five years is a plan of arrangement. Plans of arrangement are a court-approved process, governed primarily by provincial or federal corporate legislation, in contrast to takeover bids, which are governed by provincial securities legislation. Gowlings' M&A Group has recently completed a study of the use of plans of arrangement in M&A in Canada. The following is a brief overview of their findings.
The use of plans of arrangement has experienced a 34% annual growth rate and a total growth rate of 225% between 1997 and 2001 which has far outpaced the growth rate in the number of M&A transactions.
From announcement to completion, the average duration for a plan of arrangement was 14 weeks, with a range of four to 25 weeks. A typical takeover bid timeline can range from six to 12 weeks. However, the evidence also suggests that the time advantage of takeover bids over plans of arrangement has been shrinking.
The average transaction size for a plan was C$4.3 billion ($2.7 billion) but the range was very wide, with a low of C$7 million and a high of C$53 billion. In comparison, the average M&A deal size in Canada was C$175 million in 2001 and C$145 million in 2000.
Forms of consideration
Plans were generally used more frequently in stock transactions. The study found that the type of consideration used in plans of arrangement was 56% all-stock, 11% all-cash and 33% a combination of stock and cash compared to all forms of M&A transactions which were 22% all-stock, 46% all-cash and 33% a combination of stock and cash.
Plans of arrangement were used in almost every sector of the economy. However, relative to the number of transactions, there was a disproportionately high use of plans of arrangement in the oil and gas industry and in the metals and minerals industry.
Jurisdiction of acquiror
The study found that arrangements are frequently used in cross-border transactions and in 34% of all plans studied, the acquiror was a foreign entity.
The plan of arrangement mechanism has gained increased popularity and can provide significant advantages, particularly in large, complex and negotiated M&A transactions.
Paul Grod and Rob Assal