Information on legal and business topics from Canadian business lawyer Shane McLean

Archive for the ‘Mergers and Acquisitions’ Category

TSX Venture Exchange Rescinds “Founder Share Restrictions”

Posted by Shane McLean on August 19, 2013

Since 2007 and 2008 the TSX Venture Exchange has had restrictions regarding the number of “founder shares” that could be outstanding after any new listing such as an IPO, reverse takeover or Capital Pool Company qualifying transaction.  Although other types of shares are included, the “founder share” definition was often employed to catch shares that were originally issued for less than $0.05 per share.  Unless a qualifying major financing happened at the same time as the new listing, the restrictions prohibited new listings where the “founder shares” would represent more than 15% of the outstanding shares post closing.

Companies completing an RTO or a Capital Pool Company QT would often run up against this restriction, especially if the private target company had a small number of shareholders who received their shares for a minimal investment amount.  In those kinds of deals, the private company founders often end up holding a large piece of the public company, triggering the “Deal Structure and Founder Share Guidelines”.  In my experience, the TSXV was often flexible in applying the Founder Share Restrictions and would sometimes accept that the dollar value paid by the founders for their initial allotment of private company shares was not really indicative of the full value “paid” by the founders through their years of effort in growing the company.  But even in those cases, coming up against the Guidelines could slow a deal down while you work on building an argument and dealing with the Exchange.

The TSXV recently announced that they have rescinded the Deal Structure and Founder Share Guidelines.  This is a positive change in my view.  The guidelines seemed unnecessary in light of the many other safeguards built into the TSXV policies around new listings to ensure that the deal value is justified and that private company founders stick around for a while after closing.


Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Review of TSX Venture Exchange New Listings Activity in 2012

Posted by Shane McLean on May 14, 2013

Each year the TSX Venture Exchange publishes a summary of its “new listings” activity.  New listings include IPOs, qualifying transactions through the Capital Pool Company program, companies completing a reverse takeover and companies moving up from the NEX exchange or down from the TSX.  Here are some random reflections after reviewing the data for 2012:

  • In 2012 there were a total of 236 “new listings” compared to 334 in 2011.  I would not think the reduction in new listings activity comes as a shock to anyone that works in or follows public markets in Canada.
  • Of the new listings in 2012 there were 121 IPOs.  44 of those were traditional IPOs of operating companies (vs 47 in 2011) and the other 77 were IPOs of Capital Pool Companies (vs 112 in 2011).  The rate of traditional IPOs is fairly steady year over year.  The year over year drop in CPC formation would seem to line up with market sentiment over a good portion of 2012.
  • In 2012 there were 61 CPC qualifying transactions completed on the TSXV compared to 87 during 2011.   It would be interesting to know whether there is a causal relationship between this statistic and the drop in CPC formation during 2012.  For example, did the drop in qualifying transactions in 2012 lead to a drop in interest in forming a CPC or was it the other way around?  It is not possible to say from reviewing the publicly available data but with CPC formation and qualifying transactions accounting for 60-65% of new listings activity on the TSXV over the last couple years, any drop in CPC activity hurts the Exchange.
  • In 2012 there were half as many Reverse Takeovers on the TSXV as in 20112 (18 in 2012 vs 36 in 2011).  I would hazard a guess that this is closely tied to the general drop in investment activity that was felt by market participants in 2012.  If doing an RTO will not open up new sources of funding for private enterprises it greatly reduces the incentive.

All in all, the 2012 TSX Venture Exchange new listing statistics do not reveal any surprises and seem to confirm what those of us who work with companies in the public markets felt in terms of market sentiment and availability of capital during much of 2012.  Here’s hoping for a pick-up in 2013!

Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, TSX, TSX Venture Exchange | Leave a Comment »

A Caution for CPCs Looking at Foreign Targets

Posted by Shane McLean on December 13, 2012

Here is a copy of my latest posting at LWConnect, the LaBarge Weinstein LLP Blog:

A word of warning to any Capital Pool Companies considering the acquisition of a company or assets located outside of Canada and the United States: If your CPC is a reporting issuer in Ontario and the resulting issuer will not be a mining or oil and gas issuer, the disclosure for your transaction must be made by prospectus.  Basically that means that rather than preparing a filing statement or information circular as you do with all other CPC qualifying transactions you will have to prepare a non-offering prospectus and file it with the Ontario Securities Commission for review.  At that point, the OSC takes over the review of your disclosure and the TSX Venture Exchange’s review becomes an exercise limited to ensuring that the resulting issuer will meet TSX Venture Exchange listing requirements.

Given recent highly publicized scandals involving companies with foreign assets listed on Canadian exchanges, the OSC has been subjecting these transactions to a surprisingly high level of scrutiny, including review of the business and financial merits of the transaction. It can be debated whether this degree of scrutiny into the business/financial side of a deal by the OSC is appropriate, but it does seem to be the new way of things so CPCs looking at foreign qualifying transactions should be prepared.

Posted in Capital Pool Company Program, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

TSX To Require Shareholder Approval of Public Company Acquisitions

Posted by Shane McLean on September 28, 2009

The TSX manual, applicable to companies listed on the Toronto Stock Exchange, currently requires that a listed company obtain approval from its shareholders if it intends to complete an acquisition of another company and, in the course of that acquisition, intends to issue shares representing more than 25% of its currently outstanding shares.  Since 2005 there has been an exemption to that shareholder approval requirement when a TSX listed company was acquiring another public company.   On September 25, 2009 the TSX announced that this exemption will be removed effective as of November 24, 2009.

After November 24, 2009 all acquisitions which involve the issuance of shares representing more than 25% of a TSX listed company’s currently outstanding shares will require shareholder approval.

The amendment follows a public consultation process initiated in October of 2007, which at one point saw the TSX propose a new 50% threshold for public company acquisitions.  According to the TSX, a majority of the submissions received were in favour of eliminating the exemption and in favour of applying the same 25% threshold to both private and public company acquisitions.

Posted in Law, Mergers and Acquisitions, Misc., TSX | Leave a Comment »

CPC Combinations Part 2

Posted by Shane McLean on September 16, 2009

In early August I posted about CPC Combinations (here).  In that post I discussed the concept of combining a public shell company listed under the TSX Venture Exchange’s Capital Pool Company (“CPC”) Program with another existing public company (instead of the typical acquisition of a private entity).

With most CPC shell companies raising only the minimum of $200,000 on their initial public offering (which, when taken with the $100,000 in seed money, would leave the company with $300,000 less expenses after the IPO), many are finding that they do not have much purchasing power, either in terms of cash in the bank or overall valuation, to go after the really interesting target companies.  In order to help alleviate this problem, there is another type of CPC “combination” available in which two or more CPC shell companies combine together in order to pool their resources.

When the shell companies combine, each can only be given a value equal to its cash in the bank and the funds available to the combined company cannot exceed $2,000,000.   Most CPC shells are likely to combine in this way only if they have a target company lined up already since the combined entity has only 12 months post-combination to complete its “qualifying transaction”.

At a time when the list of CPC shell companies that have not announced a qualifying transaction is approaching 150 names, combining a few of them may help the prospects for finding attractive targets and also help the whole program by reducing the glut of shell companies out there.

Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, Misc., TSX Venture Exchange | 2 Comments »

LaBarge Weinstein Summer 2009 Quarterly

Posted by Shane McLean on September 10, 2009

See below for LaBarge Weinstein’s quarterly newsletter published this week:

Summer 2009 Quarterly

With the school recess ending, and some evidence that our recession is history, our team looks back on a very busy summer of M&A and investment activity. Highlighting our M&A dealflow: Exar´s acquisition of Ottawa startup veteran Galazar Networks, and the acquisition of two Waterloo-based clients by industry leaders, EA´s acquisition of social media gaming company J2Play, and Intel´s recent acquisition of multicore development tool firm RapidMind. Of course, we love acting on the other side of the acquisition table, and we congratulate EION and its CEO, Dr. Kalai Kalaichelvan, on its footprint expanding acquisition of Calgary´s Layer 10 earlier this summer.

This trend of balance-sheet strong companies looking north for technology and strategic market development hasn´t been lost on the investment community. Our team has fielded more introductory Canadian outreach efforts from US-based funds (Boston-based Sigma Partners and Valley-based Altos Ventures among them) in the past quarter than in the previous several years. This will hopefully complement investors such as Panaroma Capital and Bridgescale Partners that have, and remain, committed to supporting our tech communities and serving as syndicate partners to the remaining homegrown active funds. Many new US-based institutions have structured their funds to include workarounds to some of our Canadian tax withholding and reporting challenges formerly cited as barriers to local investment. Others, like Bridgescale, have actually opened local offices, in its case in Toronto.

On the whole, very healthy opportunities, especially for experienced management teams emerging from acquisition activities during the previous five or so years. If you and your team are working on the next big thing, we would love to assist, and please reach out to any of our partners to make a connection and get a better sense of how we can support and build momentum behind your new venture.

Back to the VC Future…

The summer has witnessed a raft of VC nostalgia for the industry’s halcyon pre-bubble days (new VC investments in the US, for example, have dipped to pre-1997 levels). One would expect a flurry of hand-wringing laments, but this hasn’t been the case.

A recent New York Times article, for example, cites venture-icon Alan Patricof’s admonition that it is time for true venture investors to “think smaller”. Patricof, the founder of the APAX group of funds which formerly managed billions of dollars in private equity earmarked funds (some of which he invested in former Gatineau-based LaBarge client CML Emergency Services, acquired by Plant Equipment in 2007), now runs a modest $75M fund seeking to avoid the industry “force-feeding” that experts suggest have diminished industry returns. Angel-boosters such as Basil Peters have developed this perspective over the course of the decade, and his book “Early Exits” is a must-read for startup founders seeking to develop business plans that properly account for an exit landscape where the IPO is a less and less viable liquidity outcome.

So what does this mean for Canadian startups? Smaller might very well be better for us, and the industry’s “back to its roots” approach seems to align with the strategies to which our best performing local funds, including Celtic House Venture Partners and Tech Capital, have recommitted themselves over the last year.  Fund managers have refocused their efforts on cultivating long-term relationships with quality management teams, and getting involved early. And while the sales cycle remains a long one (and founders should get started as early as possible in building these relationships), our view is that this focus on more intimate partnering with opportunities can only help build bridges between funders and the amazing pockets of talent that our tech communities hold.

Cleantech Diamonds in Ottawa…

If you are a founder or investor taking a look at big picture trends in the cleantech space, our team has continually been impressed with the work of Bill St. Arnaud and his team at CANARIE on the development of clean data centres and the opportunities that they present for Canada. Canada’s leadership in changing its energy mix makes it a great candidate for satisfying what is estimated to be a $600B global market by 2013. In June, CANARIE announced a $3M call for proposals in its so-called “Green ICT” space, and in particular for major zero-carbon data center pilot projects. Bill is a terrific speaker and tireless advocate for Canada’s opportunities in the industry, and we encourage anyone interested to seek him out and get his valuable perspectives.  Looking for some locally based potential winners in the field? Two stand out: Kingston-based Axiopower and Ottawa-based Menova, each of whom have focused on small-project renewable energy as a source of future significant industry growth. If you would like to discuss our firm’s experience in the industry, and our perspectives on financing and other challenges, please feel free to contact any of our partners and we would be happy to do so.

Have Digital Content, Will Travel…

One of our partners, James Smith, was fortunate enough to attend the Stratford Institute’s inaugural conference in June focused on wedding digital media content creation and distribution innovations in a single, dynamic educational setting (James’ views on the conference). The initiative feeds a vibrant trend we’ve seen recently with Canadian-based startups focusing on web- and mobile-based distribution technologies. This includes industry heavy-hitter QuickPlay Media as well as emerging technologies and platforms being proposed by startups such as Spreed, Personal Web Systems, Metranome, DEQQ, LiveHive Systems,, and Calgary’s MoboVivo. There certainly seems to be enough talent and interest to support a vibrant local digital media distribution community, and we’d be happy to share our thoughts and perspectives with you on this budding industry.

Blogs & Other

For expense-conscious startups, one of our clients Eseri, has generously made available a free trial and a 50% discount on software everyone needs, a complete IT company-in-a-box for small, medium, and growing businesses. Eseri offers a secure, virtual desktop incorporating a range of open-source tools for small businesses, and we would encourage you to take them up on their offer. And while we’re at it, we would encourage you all to check out some tools that our lawyers have been trying out lately, including Mercury Grove’s Network Hippo, Tungle’s scheduling solution, and Eighty Twenty’s desktop sharing applications.

It was disappointing to hear of Rick Segal’s departure from the Canadian VC scene this past July, and we’ll certainly miss his straight talk on the industry and its contributors. For some of his past blog highlights, click the following links, well worth the read.

The fall is venture fair season in Canada, and look for our partners and lawyers at the upcoming Ottawa Technology and Venture Showcase and the Banff Venture Forum , each being held during the week of September 28-October 2nd.

Finally, we enclose a great article passed on to us by Guelph-based startup founder and semantic web guru Greg Boutin describing how angel investors seek to de-risk investment opportunities. Finally, we remind our clients of our firm’s “Angel Connect” initiative, whereby we provide thumbnail descriptions of investment opportunities to our cross-Canada network of angels, and facilitate introductions where appropriate. If you would like to participate as an angel or you have a potential investment opportunity, please feel free to contact our partner Michael Dunleavy at and he would be happy to assist.

Dealflow Report

Here is a sample of the publicly announced transactions that our team worked in the past few months:

Events and Calendars

Copyright © 2009 LaBarge Weinstein Professional Corporation,
A Business Law Firm. All Rights Reserved.

Posted in Cleantech, Events, Financing, LaBarge Weinstein, Law, MARS, Mergers and Acquisitions, Misc., Newsletter, OCRI, Startup, Venture Capital | Leave a Comment »

CPC Combinations Part 1

Posted by Shane McLean on August 9, 2009

I have previously posted information about the TSX Venture Exchange’s Capital Pool Company Program (see here).  This is the program that allows for a shell company to go public on the TSX Venture Exchange and then look for an operating business to acquire.  Usually, this means finding an operating private company to combine with.

Less known is that the TSX Venture Exchange’s policies also permit CPC shell companies to “combine” with other public companies.  Essentially, this means that the CPC shell invests its cash into another public company instead of finding a private company to acquire or invest in.  There are some ways to  structure this type of transaction to get it done fairly efficiently, but the key hurdle is convincing the board of directors (and then the shareholders) of the CPC shell that it’s a good idea.

Usually, a CPC shell company views itself as having a valuation that is at some premium to both  its IPO value and the amount of cash in the bank.  The logic is that, having gone through the process of obtaining a public listing, the CPC shell has an intrinsic value that is in addition to the value of the funds it has in the bank and a total enterprise value that is greater than the valuation used on its IPO.     This allows the directors of a CPC shell to show some  increase in valuation to their IPO investors on closing of the qualifying transaction and may help justify the decision to enter into a particular qualifying transaction.

From the CPC shell’s perspective, the downside to negotiating a combination with another public company includes:  (a) the fact that other public company doesn’t value your listing because they are already publicly listed, and (b)  the TSX Venture Exchange’s policies prevent the CPC shell from being valued at anything other than cash value on this type of deal.   As a result, directors of the CPC shell may be loathe to recommend to shareholders that they bet on an existing public company because they may not see as much instant (i.e. paper) upside.

However, depending on what market the other public company is listed on,  the other public company can usually offer to issue shares to the CPC shell at  some discount to its market price, thus giving the CPC shareholders some notional return on their investment.  If the other public company appears poised for growth, the CPC shell directors and shareholders just might be able to see the benefit of a public to public deal.  This may be especially true if the CPC shell is getting close to its deadline for finding a qualifying transaction.

Another kind of “CPC Combination” involves combining multiple CPC shell companies into one entity in order to pursue a larger qualifying transaction.  I will talk about this kind of transaction in a later post.

Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | 1 Comment »

What is the Capital Pool Company Program?

Posted by Shane McLean on May 28, 2009

Someone once asked me:  “What’s a C-Pick?”    When I asked a few questions it became clear that they were asking about Capital Pool Companies or “CPCs” under the TSX Venture Exchange’s  Capital Pool Company Program.  (By the way, I have never heard anyone else refer to it as a “C-Pick”.)

The CPC Program essentially works like this:

  • 3 to 6 people get together and incorporate a company.  Together they must invest at least $100,000 in seed money into that company with at least $5,000 each.  
  • The company has no assets other than the seed money and no operating business (hence, it is commonly referred to as a “CPC shell”)
  • With the help of a banker the CPC shell “goes public”.  Essentially this means that it raises between $200,000 $1,900,000 using a prospectus  from at least 200 shareholders that are unrelated to the founders and begins trading on the TSX Venture Exchange.  The process is not unlike a traditional IPO except that you don’t have the usual level of business and financial information to disclose because the CPC shell would have been only recently formed and has no business or assets.
  • Once the IPO is out of the way and the shares are listed on the TSX Venture Exchange, the sole purpose of the CPC shell is to seek out an operating business or some other asset(s) to acquire within 24 months.
  • Often the target business is acquired through a “reverse takeover”.  Instead of paying cash for the company or asset being purchased the CPC shell often pays by issuing new shares to the owners of that company or asset.  The “reverse takeover” part comes in because at the end of the day the total number of shares issued to the owners of the target often represents a majority of the outstanding shares of the CPC shell, meaning that as a group the previous owners of the target now control the overall company.

Why would anyone do this?  For the founders and IPO investors of the CPC shell, the hope is that the target business will ultimately be very successful and their initial small investment will be returned to them many-fold.   For this reason, the pressure is on the CPC shell founders to find a viable target with good prospects.   For the owners of the target it is a way to obtain a public listing for their shares, eventual liquidity (i.e. an ability to sell their ownership stake on the public market) and it may provide the company with access to public market capital (i.e. $) that is not available to it as a private company.  

Why would a target do a CPC deal rather than an IPO?  There is a level of skepticism in the market relating to IPOs.  I think it is a bit of hangover from the dot-com bubble where people thought getting in on an IPO was the key to riches.  Once bitten, twice shy.  People seem more comfortable to invest a relatively small amount of money into the CPC shell IPO based on the reputation of the founders and then let those founders make the ultimate investment decision by choosing the right target.  We see serial CPC founders who do it again and again and, if successful, they can build a following of investors willing to invest in their CPC IPOs.  A traditional IPO works best if you have a splashy business story that makes good press and is easy to sell to potential investors.  For companies that have a very viable business that represents a solid investment but may not itself be overly exciting, gaining a public listing by being a target company in the CPC process may be the preferred route.

There are a lot of details about the process and a lot of pros and cons that I don’t have the space to include here.  If you have questions about the CPC program please feel free to give me a call.  I have experience on both sides of these kinds of transactions (i.e. CPC shell and target).

Posted in Business Structure, Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | 1 Comment »

Nortel Spin Outs 101

Posted by Shane McLean on May 1, 2009

A couple of us here at LaBarge Weinstein have been getting  questions  lately about how you would go about acquiring a business unit out of  Nortel.  Not surprisingly, these questions have  generally been coming from folks currently inside  Nortel who see value in the asset or business line they are working on but aren’t sure what the future holds for that business within (or outside of) Nortel.

Most of the information I have seen about what is happening with Nortel or about the future of the company appears tp be based on rumour and is shaky at best so it is hard to give a definitive answer as to what process to follow or whether offers would be well received.   However, I can offer some insights about the kinds of things to think about if you are so inclined:

1.   Internal Discussions:  First, assuming you currently work at Nortel, you need to quietly ask around to  figure out whether there is any interest in this kind of proposition within the company.  I am guessing that there must be.  As part of its restructuring, Nortel, its creditors and its court appointed monitor must be  working to figure out ways to squeeze every last dime out of the company and so they would presumably listen to any credible  expression of interest.   The key is finding the right person to talk to and expressing your interest in a credible way.  I am assuming that the closer you can get on the org chart to the finance department the better your chances are of finding someone who will know what to do with your expression of interest.  

2.  Figure Out Who You Will Be  Buying From:   This question isn’t as simple as it sounds.  It may be that you buy from Nortel or, if your business unit ends up being carved off and bought by another entity , you may end up negotiating  with the acqurier.  Dealing with an acquirer may not be a bad thing.  The acquirer may  not be particularly interested in your asset or business line but had to take  it as part and parcel of buying a larger business unit it does want. That’s probably your best case scenario because you might be able to angle for  a deal without any cash up front. A third alternative is that you may eventually be dealing with a receiver, but that will limit your options in terms of structure.

3.  How Will You Pay For It:   This is obviously a huge question and having an answer is key to giving credibility to your approach.  If you are buying direct from Nortel, cash will be king.  In a restructuring scenario the stakeholders are highly unlikely to part with assets in return for debt, shares or other future consideration.  You will probably have the most flexibility in terms of the various alternative payment structures if you end up dealing with an entity that has acquired your asset or business line out of Nortel.  If that acquirer isn’t interested in your asset or business line they may be willing to part with it on a “no cash down” deal where you take the assets, employees and cost off their hands in return for shares in your new company, debt or some other future consideration.    If you are successful they get paid.  If not, they have unloaded the cost of operating and eventually winding down that unwanted business line onto your shoulders.  Seems like a win win for them.   

4.  How Will You Fund The Operations:  If you end up buying with no cash up front, you will have to show the seller that you have a viable plan to make the business work.  After all, the seller is counting on you to be successful in order to get paid.  You will need to have a viable business plan and have your funding sourced.   

It’s not an easy process and finding the required funding is always the trick with any acquisition, but (publicly or not) Nortel assets are for sale for the right price and I’ll bet that anyone can place a bid if you come with a viable plan that is well thought out and  can be delivered with a high level of credibility.

If anyone is gearing up to move ahead with something like this, let me know if I can help.  I bet it would be a lot of fun and it would be exciting to see a good business (or a bunch of good businesses) rise out of the ashes.

Posted in Mergers and Acquisitions, Misc. | Leave a Comment »