The most widely read magazine for Canadian lawyers
Issue link: https://digital.canadianlawyermag.com/i/50842
M&A practices at Bay Street firms such as Torys LLP remain busy, says Sharon Geraghty, co-head of the firm's M&A practice group. But while the level of activ- ity continues, Geraghty and other lawyers in this area are noticing a significant change in the type of play- ers dominating the M&A market, noting that a re- cession south of the border would eventually affect law firms. Fuelled by easy access to credit — in Canada but more so in the United States — M&A was still booming through the first half of last year, says Simon Romano, a partner in the Toronto office of Stikeman Elliott LLP. In terms of the bigger transactions, Ca- nadian, U.S., and international private equity players could access attractive debt, which helped them to win pric- ing. But the economic slowdown and credit crunch resulted in this phenom- enon beginning to teeter in June and finally crash later in the year, Romano says, and the debt markets are now ba- sically closed. This doesn't mean it's the end for M&A, but now that prices have come down, it will be the strategic buy- ers who will become more active. "We'll just have a transition almost back to where it used to be, where there's a healthier mix between financial buyers and strategic buyers . . . and a lot less use of leverage — at least high levels of leverage — in these transactions," says Romano. buyers and strategic buyers . . . and a lot less use of leverage — at least high levels of leverage — in these transactions." — SIMON ROMANO, STIKEMAN ELLIOTT LLP Geraghty agrees that the credit crunch has led to a shift of balance in the M&A market in favour of strategic players and foreign buyers that don't need the same type of leveraged financing private eq- uity funds need. As a result of the shift, lawyers are also seeing more caution in the M&A market this year, and pro- cesses are taking longer. "[There was] a period there where people were mov- ing very, very quickly and getting very excited about transactions and running to deadlines that were quite tight," says Geraghty. Buyers were prepared to take a lot of risk to get a deal. Romano says he thinks mid-market DD CL GRLBBD-04 Print bw 3/5/08 1:08 PM Page 1 M&A will be alright, as it is the big deals that require lots of debt in order to function. "In what we do, the private equity players are still out there in the mid-market the way they always were "We'll just have a transition almost back to where it used to be, where there's a healthier mix between financial in purchases of divisions in private deals. But in the public deals we're involved in, the auction transac- tions . . . private equity is playing much less of a role and, you know, even in some cases, not being invited to the party," adds Geraghty. Many clients are also looking to take advantage of distressed-type oppor- tunities. "We have a lot of institutional clients who are acquisitive and . . . they actually see this situ- ation in the market as an opportunity, so they're looking at a lot of things," says Geraghty. "In the stra- tegic arena, our strategic- acquisitive clients, it's business as usual or better. With the currency changes and the fact that private equity has sort of di- minished in power in the public market, and businesses are under pressure, there are lots of buying opportunities for them. So it's a shift in the type of work, but still I see this year ahead for us still being very, very busy in the M&A area — just a different mix." Romano notes: "It'll be a different year; it'll be the strategic and industry players coming back into the fore. It's uncertain and choppy, though, right now." Howev- er, Geraghty cautions, "we are ultimately all victims of a recession in the U.S. and eventually it hits the law firms." As mergers and acquisitions diminish, restructuring and insolvency grows, and in Geraghty's practice — which she notes is fairly common on Bay Street — a lot Y 40 APRIL 2008 www. C ANADIAN Printing & Graphic Services On-Demand Digital Printing ou can have it fast in full high end colour or true 600dpi black. Sizes up to 12" x 18", we provide a large selection of stocks. Dye & Durham is an FSC Certified Printer, making a commitment to responsible forestry. dyedurham.ca 1-888-393-3874 Fax: 1-800-263-2772 Choose Dye& Durham your ONE source supplier mag.com C o Departures from Toronto, Ottawa, Montreal, Halifax Proudly a Member of Flight Centre Limited W e ' r e a y C a n a p d i m a n a n