80 | LEXPERT • June 2018 | www.lexpert.ca/usguide
come, pricing is a challenge. Some buyers
in industries that would be affected by
changes to NAFTA are taking a wait-and-
see approach, says Pletcher, who chairs his
firm's national mining group.
That said, deals are still happening, and
equity investors, for the time being, don't
seem particularly rattled. Shares in Cana-
dian auto parts makers have risen strongly
over the past 18 months, with some ap-
proaching record highs. Shares in forest
companies are also benefitting from an
updraft. Practitioners in the area say one
of the few areas where uncertainty is show-
ing through is in some M&A agreements
that now include clauses that require the
purchaser to be compensated in the event,
say, the US walks away from NAFTA.
Perhaps the real issue is that uncertain-
ty around trade deal is so great that players
simply don't know how, or whether, to act.
Over the past year, the Trump adminis-
tration has made a variety of statements
about its intentions on NAFTA, ranging
from, "It's a bad agreement that must be
torn up" to, more recently, "Let's renego-
tiate the pact." Some observers speculate
that even the White House isn't clear on
what it wants.
One theory making the rounds, ac-
cording to a lawyer who asked not to be
named, is that the old Canada-US Free
Trade Agreement that existed prior to
NAFTA was never actually terminat-
ed. Instead it was simply left dormant.
Should NAFTA be thrown out, this line
of thinking goes, the old Free Trade deal
would automatically come back into
force. And since it was similar to NAF-
TA, there would be minimal disruption
for Canadian companies.
But this just adds to the speculation.
The bottom line is that there are a great
many ways this issue could be resolved,
and given the complexity of NAFTA it-
self, each potential outcome would impact
companies differently. That's a whole lot
to think about for any potential partici-
pant in an M&A deal. Some observers
wonder if they're simply tuning it out. "I
think people are sort of saying, we can
only control what we can control," says
Goodman's Feldman. "People are doing
deals in spite of the uncertainty."
There's "an overwhelming
feeling from our clients of
business as usual right now,"
Cameron Belsher of
McCarthy Tétrault LLP says.
NAFTA "is going to be a
factor, but right now there
are so many other factors
lined up for robust
M&A ac-
tivity [and that's] overweigh-
ing NAFTA considerations."
Cameron Belsher, McCarthy Tétrault LLP
Trade
many other factors lined up for robust
M&A activity [and that's] overweighing
NAFTA considerations."
Belsher identifies three of them. One
is the low Canadian dollar. Another is
interest rates, which are close to historic
lows. And the third is the emergence of
private-equity funds sitting on vast piles
of capital and looking for a place to put it.
"The M&A market is as robust as I've seen
it since 2006," he says. "We are talking
across the board."
"From our clients we don't hear a lot of
fear about NAFTA," says Belsher.
Like everybody else, they're in the dark
about how the negotiations will play out,
but they're not sitting around waiting for
clarity. From their perspective, it's a factor
in their thinking, but for the time being
it's less important than the immediate
drivers of the economy. "People are fo-
cused on the availability of capital; there's
a lot of liquidity in the market so it's time
to build, it's time to grow."
Many of the deals he's worked on in-
volve businesses started by baby boomers
who, as they enter their 60s and 70s, are
looking to sell up. They've spent their
lives building their companies and now
they want to enjoy the benefits. These are
strong businesses with good valuations,
and private-equity funds are enthusiastic
buyers — it's a "perfect storm," he says.
Not everybody is feeling euphoric,
though. Auto parts manufacturers, for
example, would experience significant
disruption if NAFTA was torn up, with
Canadian players potentially subjected to
penalties for their US exports. Lumber
producers would be similarly disrupted, as
would pulp and paper companies. Those
sectors are in the eye of the storm.
"What I see is that there is considerable
uncertainty associated with industries
where there is a very significant compo-
nent of trade with the US that's front and
centre addressed in NAFTA," says Fred
Pletcher, a partner at Borden Ladner Ger-
vais LLP. "So, if you're a Canadian auto
parts manufacturer or a contributor to the
auto supply chain, yeah, it's more difficult
these days" to find an acquirer.
The stumbling block for a potential
buyer is figuring out value for the target as-
set. If NAFTA stays in place, that's a rela-
tively simple calculation, but if NAFTA
goes away or gets renegotiated, what does
the price become? Until we know the out-
