38 LEXPERT MAGAZINE
|
SEPTEMBER
/
OCTOBER 2018
nual increases in respect to mandates over
2016 and fiscal year 2017 and I would ex-
pect we will see those percentages in 2018
and in the next number of years. e Cana-
dian market could be looking at 100 to 150
overall annual deals this year."
He characterized those increases as
"staggering," but added that the sudden,
extensive growth in its popularity in Can-
ada is not mirrored in the US, where the
product has been available and utilized for
a much longer period.
Caruso says having representation and
warranty insurance can oen speed up
the conclusion of a transaction, "which is
extremely important these days. We see it
increasingly as a requirement by a seller in
a seller auction, for example, and is con-
nected to exits. In competing bids, buyers
tend to see this as a way to distinguish their
bid from the others."
Sellers also find the insurance attrac-
tive because it helps to close the door on a
deal once it has been concluded. "A fund
has a lifetime of say 10 years," notes Tevlin.
"Let's say in Year Nine they're selling for
$100 million and they distribute the funds
to the limited partners. Once they've done
that, they don't ever want to call the money
back because, say, they just got a $20 mil-
lion claim against them. Once all the funds
are dispersed, they want to wind up the
fund and be done with it."
Initially quite expensive, the insurance,
which can indemnify transactions, typi-
cally in the range of 10% to 25% of the pur-
chase price, is more affordable than when it
was first offered in Canada.
e reason the cost has lowered, says
Mercury, "is that the market has now
matured. Whenever you develop a new
insurance product, history shows that
you need time to for the provider of the
product to have enough data to properly
appraise the risk."
While the accumulation of data about
the PE market in Canada is obviously ben-
eficial, it can't be examined without consid-
ering a potentially influential element that
is, at the moment, beyond the reach of the
researchers to assess. Namely, the possible
effect of what's happening in the US. Issues
such as US Tax reform, the renegotiation of
NAFTA and the imposition of trade tariffs
could all play a role in the flow of private
equity capital into Canada.
Dionne says she has yet to see any nega-
tive repercussions from what is happening
with the issues emanating out of the US
"but, down the road, maybe. It could im-
pact the revenue streams and expenses of
industries and, for sure, it could have an
impact on the price of investments."
Mercury, whose practice is intricately
linked to what happens south of the bor-
der, says he is "a bit defiant" about any con-
sequences from a rejigged set of trade rules.
"My main message is that Canada will
remain an attractive jurisdiction for US
capital regardless of what happens with
NAFTA and US tax reform and all that,"
he says. "I think that notwithstanding
all those issues, our economies are so in-
exorably tied and rooted that I think it's
inevitable that continued integration is
going to occur."
| PRIVATE EQUITY |
Paul McLaughlin is a writer
and playwright based in Toronto.
