Team Members ()

Publications ()

News ()

Pages ()

Services ()

  • Our Team

    Our Team

    • Lawyers & Clerks
    • Leadership Team
    • Board of Directors
    • Human Resources
    • Marketing & Business Development
    • Paraprofessional Services
  • Our Services

    Our Services

    • Service Areas
      • Aboriginal and Indigenous Law
      • Administrative Law
      • Agribusiness
      • Banking and Financial Services
      • Bankruptcy and Insolvency
      • Business Disputes
      • Business Immigration
      • Class Actions
      • Construction Law
      • Corporate and Business
      • Corporate Finance and Securities
      • Corporate Governance and Compliance
      • Cross-Border Law
      • Education Law
      • ESG (Environmental, Social, & Governance)
      • Estates and Trusts
      • Environmental Law
      • Foreign Direct Investment
      • Franchise Law
      • Health Law
      • Insurance
      • Intellectual Property
      • Labour and Employment
      • Litigation
      • Maritime Law
      • Media & Entertainment
      • Municipal Law
      • P3 and Infrastructure
      • Pensions and Benefits
      • Privacy, Data Protection and Cyber Security
      • Public Law
      • Real Estate
      • Regulation of Professions
      • SISIP LTD Allowances Class Action
      • Tax
      • Technology
      • View All
    • Industries
      • Cannabis
      • Construction & Property Development
      • Emerging & High Growth Companies
      • Energy & Natural Resources
      • Financial Services
      • Government & Institutions
      • Insurance
      • Manufacturing, Processing & Sales
      • Mining
      • Ocean Economy
      • Private Clients
      • Technology
      • View All
    • More Services
      • MC Advisory
      • MC Legal Lab
  • Our Insights
  • Our Firm

    Our Firm

    • Our Values
    • Our History
    • Our Representative Work
    • Our Global Reach
    • Our News
    • Diversity & Inclusion
    • Collective Social Responsibility
    • Pro Bono Program
  • Our Careers

    Our Careers

    • Lawyer Opportunities
    • Business Professional Opportunities
    • Paralegal & Legal Assistant Opportunities
    • Summer Student & Articling Opportunities
    • Diversity & Inclusion
    • Collective Social Responsibility
  • 1.866.439.6246
  • Contact
  • Search
  • Stay Updated
  • Contact Us
  • LexMundi World Ready
  • Privacy Policy
  • http://linkedin.com
  • http://facebook.com
  • http://twitter.com
  • 1.866.439.6246
Home > Our Insights > Getting the Deal Done: 3 Key Terms to Conserve Cash in M&A Deals
Publication

Getting the Deal Done: 3 Key Terms to Conserve Cash in M&A Deals

Published:

November 24, 2020

Author(s):

  • Julie Robinson

Share

Print

An economic downturn can result in an M&A uptick: there can be more attractive targets on the market, and sellers can be more motivated to make a deal. But economic uncertainty (like that resulting from the COVID-19 Pandemic) poses challenges for both buyers and sellers looking to make an M&A deal happen. Buyers look to take advantage of acquisition opportunities without depleting their cash reserves by seeking terms that reduce their upfront cash payments. Sellers look to mitigate and manage the additional risks these terms present without jeopardizing the deal. Here are three of the top M&A financial terms that conserve the buyer’s cash and still get the deal done.

1. Deferred Cash Consideration

Deferred cash consideration is the most straightforward approach. The buyer pays all cash, but rather than paying the full purchase price on closing, it pays a portion of the purchase price at a later date. The deferred portion of the purchase price can also replace a traditional escrow account, with indemnity and other claims being set-off against the deferred amount instead of being satisfied from the escrow account. For a buyer, this approach allows it to retain cash in its bank account until the deferred consideration is paid, and gives it more control over the exposed amount if there’s an indemnity claim against the seller. For a seller, the increased risk lies in the fact the ultimate payment of the deferred consideration depends on the buyer’s credit-worthiness. The seller might also be required to postpone its receipt of payment of the deferred consideration in favour of the buyer’s existing lender(s). To account for this increased risk and the time value of money, sellers will try to negotiate interest on the deferred amount and might seek security over the buyer’s assets, including those of the target business.

2. Equity Consideration

Equity consideration adds complication to the deal. The buyer pays a portion, or even all, of the purchase price in equity securities. For a buyer, this approach offers an immediate and permanent reduction in cash payments for the deal, but it comes with additional dilution for the buyer’s existing investors. For a seller, the risk is significantly increased if there’s no liquid market for the equity securities it’s receiving as consideration, such as in private company shares, or if there’s an extended hold period on the securities prohibiting trades. The seller will also face tax consequences for receiving equity, and will want to consider whether there’s a way to defer an income inclusion for tax purposes. However, there are benefits to the seller. Equity consideration gives the seller the ability to participate in the upside value of the buyer, including in the target business, and obtain equity securities that it might not otherwise be able to obtain, such as in a private company. Sellers will want to seek some level of due diligence on the buyer’s business, and representations and warranties from the buyer to support the valuation the buyer imputes to the equity securities it issues as consideration to the seller.

3. Earnouts

A potentially more complicated approach, earnouts are particularly attractive when forecasting profitability is difficult, as it is in many sectors during the COVID-19 Pandemic. The buyer makes one or more future purchase price payments based on the target business’s achievement of specified performance criteria, such as revenue or EBITDA, after the sale closes. For a seller, the risk arises because the seller will have less control over how the target business is run, and therefore over its ability to meet the performance threshold, after closing. Sellers will want to carefully review the earnout terms in the acquisition agreement to ensure they clearly outline the performance criteria and restrict the buyer from making inappropriate changes in the target business that would negatively impact its ability to achieve the performance threshold.


Please contact your McInnes Cooper lawyer or any member of the Corporate Finance & Securities Law @ McInnes Cooper to discuss this topic or any other legal issue.


McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

© McInnes Cooper, 2020. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Email us at [email protected] to request our consent.

Share

Print
View Related Content

Related Lawyers

  • Julie Robinson

    Julie Robinson

    Partner

Related Services

  • Corporate Finance and Securities
  • Mergers and Acquisitions

Related Industries

  • Emerging & High Growth Companies

Related Publications

View All Publications
  • 5 Practical Tips to Prepare for a Successful Venture Capital Financing

    Dec 14, 2022

    If you’re at the stage in the financing lifecyle where venture capital is the right route to grow your business, here are five tips to help…

    Read More
    Publication
  • 7 Deal Protection Measures to Help Avoid the Musk & Twitter M&A Drama

    Oct 28, 2022

    Finally closing on October 27, 2022, the tumultuous Elon Musk/Twitter M&A deal drama has been unfolding for months, with both sides making…

    Read More
    Publication
  • Going Public: 3 IPO Alternatives

    Apr 20, 2022

    If you’ve reached the stage in your financing lifecycle where you’re ready to take your company public, you might think you’ve only got…

    Read More
    Publication
  • Smart Contracts & Automated Contracts: 5 FAQs

    Jan 25, 2022

    More and more people are using smart contracts: the global smart contracts market was valued at USD $145M in 2020; it’s projected to be valued…

    Read More
    Publication
  • Limited Options: New Employee Stock Option Tax Rules Effective July 1, 2021

    Jun 24, 2021

    Many employers use equity compensation plans like employee stock option plans to attract, motivate, and retain talent. One reason stock options…

    Read More
    Publication
  • Professional Health Services Sector M&A Deals: 5 Legal Positioning Tips

    Mar 26, 2021

    Merger and acquisition deals are still happening across all sectors, perhaps at an even higher rate than pre-COVID-19 pandemic, even if the…

    Read More
    Publication
  • 5 Term Sheet FAQs for Startups & Growing Companies

    Mar 18, 2021

    Your startup idea has blossomed into a viable business: you’ve incorporated a company, it’s been growing steadily, and you’re at the stage…

    Read More
    Publication
  • 5 Key Privacy FAQs for Startups & Growing Businesses

    Jan 26, 2021

    This publication has been updated as of March 4, 2022. Privacy is critical to every business in every sector, including startups and growing…

    Read More
    Publication
  • What’s the Deal? Creating, Interpreting & Enforcing Electronic Contracts

    Nov 17, 2020

    Spurred by the COVID-19 Pandemic and bricks-and-mortar closures, businesses - from SMEs to multinationals, startups to mature businesses,…

    Read More
    Publication
  • 10 Incorporation FAQs for Startups & Growing Businesses

    Oct 7, 2020

    Properly incorporating and structuring is key to position a startup to attract investors and strategic partners and, if desirable, achieve a…

    Read More
    Publication
  • Canadian Governance Diversity Disclosure Obligations: Get on Board

    Sep 29, 2020

    This publication has been updated as at December 22, 2022. It’s a forgone conclusion that diversity in thought and in leadership makes good…

    Read More
    Publication
  • Playing it Safe: Employer Obligations To Employees Working From Home

    Aug 12, 2020

    This publication has been updated as of May 5, 2021. The ongoing COVID-19 pandemic has led many employees to continue working from home, by…

    Read More
    Publication
  • Uber Technologies Inc. v. Heller: One-Sided Standard Form Clauses May Be Unenforceable

    Jul 6, 2020

    On June 26, 2020, the Supreme Court of Canada released Uber Technologies Inc. v. Heller, a much-awaited decision regarding the enforceability of…

    Read More
    Publication
  • Top 5 Legal Considerations When Launching a FINTECH Startup

    Jun 12, 2020

    The financial technology (Fintech) industry uses technology to support and enhance financial and banking services.

    Read More
    Publication
  • Coping with COVID-19: 5 Steps to Compliant Socially Distant AGMs

    Mar 17, 2020

    Business corporations laws and stock exchange policies mandate that issuers hold annual general meetings (AGM) and set requirements for when and…

    Read More
    Publication
  • 3 Ways to Commercialize Your Intellectual Property (IP) Rights

    Feb 12, 2020

    Intellectual property (IP) can be a business’s most valuable (even only) asset. Once you’ve taken steps to understand what the five main IP…

    Read More
    Publication
  • Still an Option: Feds Delay New Tax Rules for Employee Stock Options

    Jan 30, 2020

    NOTE: The new tax rules for employee stock option plans take effect on July 1, 2021. Learn more at Limited Options: New Employee Stock Option…

    Read More
    Publication
  • CSA Staff Notice 51-359: Corporate Governance Compliance by Public Cannabis Co.’s

    Jan 22, 2020

    All issuers must comply with both periodic and ongoing securities law corporate governance (and other) disclosure requirements. This can,…

    Read More
    Publication
  • “Register for Individuals with Significant Control”: 5 Key Facts CBCA Corporations Need to Know to Comply

    May 21, 2019

    As of June 13, 2019, private companies incorporated under the Canada Business Corporations Act (CBCA) must prepare and maintain a register of…

    Read More
    Publication
  • Atlantic Canada Seafood Processing Mergers & Acquisitions: 3 Due Diligence Tips

    Apr 29, 2019

    The growing global population is feeding global demand for seafood. Growing demand is likely to drive investment, particularly mergers and…

    Read More
    Publication
  • 5 Basics Every Startup & Growing Business Should Know About Employment Law

    Apr 8, 2019

    Growing a business takes people. In early days, many startups have just one “employee”: the founder. At some point, the founder might retain…

    Read More
    Publication
  • Cannabis Compliance: 3 Tips to Help Cannabis Industry Reporting Issuers Comply with Securities Law Disclosure Obligations

    Nov 16, 2018

    Companies engaged in the cannabis supply chain are highly regulated by federal and provincial cannabis-specific laws as well as a myriad of…

    Read More
    Publication
  • Incorporating a Business? Incorporating in N.S. Will Soon Be More Attractive

    Sep 10, 2018

    As of January 2019, incorporating a limited company in N.S. will be more economical. On September 7, 2018, the N.S. government announced it’s…

    Read More
    Publication
  • 10 Key Terms to Make Clear in Every Software Licensing Agreement

    Jul 18, 2018

    Most businesses – from startups to SMEs to multi-nationals, and from private family-owned businesses to public corporations – will use…

    Read More
    Publication
  • The More Modern & Transparent Canada Business Corporations Act (CBCA)

    Jun 12, 2018

    This publication has been updated as at July 8, 2022. Changes to the Canada Business Corporations Act (CBCA) over the past several years have…

    Read More
    Publication
  • More Valuable Than Money? The 5 Most Common Equity Compensation Plans

    Apr 2, 2018

    Equity compensation plans are a valuable and versatile tool for many corporations, from early-stage startups to established blue-chips.…

    Read More
    Publication
  • Is cryptocurrency the right tool for your company to raise capital? 5 FAQs about Initial Coin Offerings (ICO)

    Dec 22, 2017

    Blockchain technology has already been a transformative force in a number of sectors. Its most prominent use to date has been as the…

    Read More
    Publication
  • “Facilitation Payments” to Foreign Public Officials Violates Canada’s Corruption of Foreign Public Officials Act

    Nov 17, 2017

    It’s official: as of October 31, 2017, “facilitation payments” contravene Canada’s Corruption of Foreign Public Officials Act (CFPOA).…

    Read More
    Publication
  • 10 Legal Considerations When Incorporating Your Startup

    Nov 16, 2017

    Corporations are the leading business vehicle in modern commerce. For startups, properly structuring and incorporating is critical to avoid…

    Read More
    Publication
  • 2018 Planning Starts Now for TSX-Listed Issuers: TSX Updates Disclosure Requirements

    Nov 2, 2017

    On October 19, 2017, the Toronto Stock Exchange (TSX) announced it had adopted amendments to its Company Manual. Originally proposed in Spring…

    Read More
    Publication
  • Protect Your Assets: 3 Best Practices for Intellectual Property (IP) Owners

    Oct 31, 2017

    Intellectual Property (IP) can be a valuable asset – even the most valuable asset – of a business. So it’s worth making sure the business…

    Read More
    Publication
  • 5 Anti-Corruption Law Compliance Program Tips

    Aug 16, 2017

    In the not-so-distant past, Canadian enforcement of its anti-corruption and anti-bribery legal regime has been relatively laid-back. But the…

    Read More
    Publication
  • Steering clear of personal liability for oppression: Supreme Court of Canada offers guidance to corporate leaders in Wilson v. Alharayeri

    Jul 17, 2017

    A corporation does not always sail in calm or safe waters. Cash shortages, unattainable or unmet goals, Board disagreements over the best course…

    Read More
    Publication
  • Growing Your Business: 3 Structuring Solutions

    Jul 13, 2017

    When growing your business, you face many decisions, including choosing the business structure that is right for you. Your legal team can be…

    Read More
    Publication
  • Anti-Corruption Law Exposes Payments to Governments Under Extractive Sector Transparency Measures Act

    May 11, 2017

    The Extractive Sector Transparency Measures Act is one of several anti-bribery and anti-corruption laws aimed at fighting corruption in the…

    Read More
    Publication
  • Cannabis Legalization in Canada: Seeds have sprouted, but the branches are still bare

    Apr 20, 2017

    On April 13, 2017, Canada’s federal government introduced legislation that, if passed into law, will legalize recreational cannabis in Canada.…

    Read More
    Publication
  • 5 Steps for Compliant Disclosure on Social Media

    Mar 30, 2017

    Social media platforms, like Instagram, Twitter, LinkedIn, YouTube, Facebook and GooglePlus, arguably have more followers and are more closely…

    Read More
    Publication
  • Information Technology (IT) Contracts: 3 Key Lessons for Customers & Service Providers

    Mar 30, 2017

    There are very few examples of a Canadian court interpreting and opining on the provisions of an information technology contract. So the Ontario…

    Read More
    Publication
  • Cyber Security: A 5-Step Data Breach Risk Mitigation Plan for Corporate Boards & Directors

    Feb 24, 2017

    This publication has been updated as at January 12, 2023. Many organization (66%) store the personal information of customers. employees,…

    Read More
    Publication
  • The Atlantic Immigration Pilot Program (AIPP): 5 Key Opportunities & Risks for Employers

    Feb 22, 2017

    On January 1, 2022, the Atlantic Immigration Pilot Program became the permanent Atlantic Immigration Program (AIP). Learn more at From Pilot to…

    Read More
    Publication
  • The Atlantic Link: 5 Key Questions About the Electrifying Opportunity to Connect to a New Renewable Energy Market

    Jan 13, 2017

    On January 11, 2017, Emera Inc. offered an electrifying opportunity for renewable energy developers to potentially access the New England…

    Read More
    Publication
  • Time to Shine: Nova Scotia to Launch Solar Energy Pilot Program in 2017

    Dec 15, 2016

    On December 13, 2016, the Province of Nova Scotia released for comment draft regulations that will establish the Solar for Community Buildings…

    Read More
    Publication
  • Founders Shareholders’ Agreement: Key Considerations, Terms & Complementary Agreements

    Oct 21, 2016

    All shareholders – whether in a startup, a small or large business or a family-owned business – can benefit from a shareholders’…

    Read More
    Publication
  • Protect Your Assets: An Intellectual Property (IP) Primer

    Oct 19, 2016

    This publication has been updated as at January 17, 2023. For many businesses, large and small, their “Intellectual Property” (IP) is one…

    Read More
    Publication
  • 3 Key Employment Law Steps to Take Now to Help You Sell Later

    Oct 19, 2016

    Business owners wear many hats – including employer. Your employees may be your business’s greatest asset, but they could also be your…

    Read More
    Publication
  • Ontario Follows Suit With Securities Act Changes Tightening the Belt on Insider Trading Regulation

    Aug 15, 2016

    The standards expected of market participants are steadily increasing in response to demand to address white collar crime – including…

    Read More
    Publication
  • Deciding Between Federal & Provincial Incorporation: 5 Key Considerations

    Aug 9, 2016

    This publication has been updated as at January 27, 2023. A key legal decision in starting or growing your business is choosing the…

    Read More
    Publication
  • Get Your SEDAR Profile: Changes to Private Placement Filing Requirements Effective May 24 & June 30, 2016

    Jun 6, 2016

    On June 30, 2016, amendments to National Instrument 45-106 Prospectus Exemptions and related changes to Companion Policy 45-106 Prospectus…

    Read More
    Publication
  • 3 Tips to Use “Forward-Looking Information” to Enhance Your Investor Relations

    May 31, 2016

    You’re on a tight timeline to issue a press release. You finish your draft and ‘cut & paste’ your standard “forward-looking…

    Read More
    Publication
  • From Startup to Exit: 5 Key Stages of the Financing Lifecycle

    May 10, 2016

    This publication has been updated as at April 18, 2022. Access to sufficient capital is always a business issue, from the startup stage right…

    Read More
    Publication
  • 5 Key Changes to Early Warning Reporting System Effective May 9, 2016

    May 2, 2016

    Amendments changing the early warning reporting system take effect on May 9, 2016, provided all necessary approvals are obtained (except in…

    Read More
    Publication
  • New Early Warning Reporting System Exemptions for Certain Securities Lending Arrangements Effective May 9, 2016

    May 2, 2016

    Amendments changing the early warning reporting system take effect on May 9, 2016, provided all necessary approvals are obtained (except in…

    Read More
    Publication
  • The New Nova Scotia Mineral Resources Act: The Good, The Risky & The Neutral

    Apr 21, 2016

    On April 15, 2016, Bill No. 149, The Mineral Resources Act (2016) (2016 Act), passed its second reading in the NS House of Assembly. Although…

    Read More
    Publication
  • 5 Key Changes Streamline Venture Issuer Obligations

    Jan 18, 2016

    Things have gotten a bit easier for venture issuers, such as those listed on the TSX Venture Exchange, with recent changes to their obligations.…

    Read More
    Publication
  • New Kid on the Block: Crowdfunding Joins Traditional Equity-Based Funding Options for Startups & SMEs

    Oct 19, 2015

    Access to sufficient capital to fund operations, research and development, and other costs is a key challenge for start-ups and for some small…

    Read More
    Publication
  • The Export/Import Journey: 3 Key Ways Choosing a Free Trade Agreement Country Can Simplify the Trip

    Apr 2, 2015

    The market for the sale and the supply of goods is a global one for many businesses in today’s economy. Both exporting goods from Canada and…

    Read More
    Publication
  • Changes to Canada’s Trademarks Law: The Good, The Bad & The Ugly

    Jan 26, 2015

    NOTE: Substantial changes to Canada’s Trademarks Act took effect on June 17, 2019 Learn more at New Canadian Trademarks Regime Effective June…

    Read More
    Publication
  • 5 “Legal” Reasons Why Natural Resource Companies Should Care About Corporate Social Responsibility (CSR)

    Dec 10, 2014

    “Corporate Social Responsibility” (CSR) as a concept has been floating around in business-speak for years – but stakeholders in the mining…

    Read More
    Publication
  • The Top 5 Corporate Governance Best Practices That Benefit Every Company

    Sep 16, 2014

    This publication has been updated as at August 25, 2022. Many believe that only public companies or large, established companies with many…

    Read More
    Publication
  • Joining the Crowd – NS & NB Consider Crowdfunding

    Jun 11, 2014

    Note: For an update on Crowdfunding, read: New Kid on the Block – Crowdfunding Joins Traditional Equity-Based Funding Options for Start-ups…

    Read More
    Publication
  • Legal Update: Risky Trading – Insiders and Potential M&A’s

    Nov 1, 2013

    Recent decisions of securities regulators and amendments to Canadian securities laws demonstrate regulators' lowered tolerance for insiders who…

    Read More
    Publication
  • A Practical Analysis of “Material Fact”

    May 21, 2013

    In its April 2013 decision in Re Stan, the Alberta Securities Commission provides issuers with a practical approach to the assessment of both a…

    Read More
    Publication
  • A White Paper on Reforming Canada’s Transportation Policies For the 21st Century

    Feb 8, 2013

    While much of the developed world struggles with debt and chronically low growth, Canada, one of the best-performing members of the G-7,…

    Read More
    Publication
  • CSA Staff Notice 11-318: Guidance for Cease Trade Order Database Users

    Aug 27, 2012

    Introduction and Purpose Staff of the Canadian Securities Administrators (CSA Staff or we) are publishing this Staff Notice (the Notice) to…

    Read More
    Publication
  • Canadian Securities Administrators Adopt Rule For Over-The-Counter Issuers

    Jun 1, 2012

    Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter Markets will come into effect on July 31, 2012. Once effective,…

    Read More
    Publication
  • Alert: Supreme Court of Canada Finds Proposed Canadian Securities Act Unconstitutional

    Dec 22, 2011

    On May 26, 2010, the Canadian federal government released the proposed Canadian Securities Act (the Act) which would, among other things, create…

    Read More
    Publication
  • Investor Readiness

    Nov 1, 2011

    Entrepreneurs need to be ready for due diligence, so it’s essential to involve legal advisors and accountants early in the process. Click…

    Read More
    Publication
  • Accounting Firms – Do they need to be registered as exempt market dealers

    Oct 6, 2011

    In 2009 Canadian securities regulators changed the rules relating to securities “registration” – these rules determine who is required to…

    Read More
    Publication

Stay Updated

Subscribe to McInnes Cooper to stay current with our leading insights on legal updates, trends, news, events, and services.

Connect With Us:
  • Follow us on Twitter @mcinnescooper
  • Like us on Facebook @mcinnescooperlaw
  • Join us on LinkedIn @mcinnes-cooper
  • 1.866.439.6246
  • Privacy Policy
  • Copyright © 2023 — McInnes Cooper
Lex Mundi Logo MC Advisory Logo