Insight

The Buyout Brigade

Neill May, John Connon, and David Matlow discuss what’s ahead for private equity—and why dealmakers of all stripes have more leverage than ever.

An Interview With Goodmans
Best Lawyers

Best Lawyers

May 13, 2020 08:00 AM

A decade after a punishing global recession—and amid concern that public markets’ extraordinary froth is at last beginning to subside—the space in which private equity operates seems especially roomy and comfortable. Taking full advantage is Goodmans, the renowned Toronto transactions outfit recently named “Law Firm of the Year” in Canada for Leveraged Buyouts. In the fall of 2019, Goodmans partners Neill May, John Connon, and David Matlow sat down with Best Lawyers CEO Phillip Greer to talk about what’s ahead for private equity—and why dealmakers of all stripes have more leverage, so to speak, than ever.

What does it mean to you to have Goodmans recognized by its peers as Canada’s LBO and private equity Law Firm of the Year?

Neill May: Obviously, it’s flattering. At Goodmans, we take a lot of pride in our history and culture. We’re not a firm that historically grew up with the pillars of the Canadian economy—the big six banks and the four insurance companies, and the massive infrastructure companies. We grew up with entrepreneurs. Because of Eddie Goodman’s and, more recently Dale Lastman’s, leadership, we have a strong entrepreneurial culture. We’re also unique in this marketplace among our peers, many of whom have multiple offices across the country or in other national jurisdictions. We are a Toronto office, and so of necessity, we play nice in the sandbox. What does it feel like to be recognized? It’s tremendously encouraging.

Are there any cases in particular that you feel contributed to this distinction?

NM: Some transactions get more notoriety because of the participants, the industry, the scale. The WestJet transaction [the airline was acquired by Toronto investment firm Onex in May 2019] naturally received a fair bit of attention. Onex is a high-profile purchaser. Aviation is a highly regulated industry. It was an extraordinarily scrutinized and complicated transaction. So that may have contributed to the attention it received. Hudson’s Bay, an iconic company in Canada, was another high-profile transaction. We acted for Abrams Capital on that one. These transactions reflect something we’re going to touch on further, which is the trend away from public-market capitalization toward this private-equity space.

Another example is enterprise software maker Coveo. Coveo was all over the Canadian press this week because, for obvious reasons, Canadians tout our stake in the AI space and in the IT space more generally, because that’s where the money and the sexy growth is. Although the transaction got press because of [the Ontario municipal employee pension fund’s] investment in it. The largest institutional investor is Evergreen, which is the private-equity arm of Elliott [Management], the giant U.S. investment firm. We’ve acted for Evergreen on every stage of its investment in Coveo.

John Connon: I think the WestJet transaction attracted an enormous amount of ink and attention from our peers. When a group like Onex seeks to buy a company like WestJet, it speaks to the depth of our practice that they would choose us to represent them. Obviously, they’d have their pick of the litter across Canada. That’s a great vote of confidence, and we very much appreciate it. We’ve done a lot of work for years with Clairvest, and my partner David Matlow can speak to some of the work that we’ve done for them on fund formation. But we also act for them on acquisitions, both primary and secondary investments. They’ve retained us on a number of occasions in connection with U.S. acquisitions. So notwithstanding that the target investment is located in the U.S., they value our skillset sufficiently that they’ve elected to go with us even though it’s not our jurisdiction.

What are the most prominent trends you’ve noticed emerging throughout your field?

NM: We’ve hinted at this before, but the rate of growth of private-equity activity continues to be remarkable. We’ve looked at a variety of metrics. They vary because there’s a different methodology, but the rate of private-equity capital is simply outpacing [public markets]. In part, that’s not an emerging trend; it’s an enduring trend. We work hand in hand with our finance group, and the reality is that capital is readily available for these clients: the Onexes, the Clairvests, the Northern Private Capitals, and Searchlights, to name a few.

JC: In terms of how the LBO field has changed, I think for the last several years it’s been a real seller’s market. There are lots of buyers with lots of dry powder, and cash is easily available in the form of debt financing. Given all that, sellers are really well-positioned to extract favorable deal terms. So there are more dollars chasing deals, which is great for sellers. And the deals themselves are changing. Now in Canada, we’re seeing a lot more U.S.-style transactions for public-market deal terms with no indemnities, no survival, no—or negligible—escrows, because of the prevalence of representation and warranty insurance. Ten years ago, rep and warranty insurance were essentially unknown in Canada. Five years ago, you started to see more of it, but it was still relatively niche. And now, rep and warranty insurance are used routinely even in smaller deals, as small as $20 million to $25 million, because the policy premiums are more attractively priced than even just a year or two ago. The public-market exit is less attractive for private-equity sponsors. So you’re seeing a lot more sponsor-to-sponsor transactions than you would have a decade ago. Even when they have dual-track processes, for the most part, it seems like the exit is a private exit, as opposed to going down the public-market route.

David Matlow: And in all private-equity fund offering memorandums, there’s a risk factor. These are not liquid. They’re not registered. You can’t get out of them. Notwithstanding that, there’s a very lively market in terms of liquidity. They’re not transferable over a stock exchange, because there are tax implications both in Canada and the United States for that kind of public trading. Yet among sophisticated investors, there’s a very active market. We’ve acted on perhaps a hundred of these private-equity transfers from one holder to another. It’s an M&A transaction. It’s not a trade over an exchange. But there are many of these transactions in the marketplace. That might be unknown to people who invest in these private-equity funds and simply read the risk factor, which suggests that they have to hold it for the 10- or 12- or 14-year term of the funds.

To continue in that vein: What has changed in the LBO space in the decade since the global recession?

DM: One thing we’re seeing is a private-equity fund transferring an interest in a business to another private-equity fund. That goes to the point John made, that there’s so much liquidity floating around. It used to be that a private-equity fund would purchase an interest in an investment, grow it, build it, consolidate other businesses, and either take it public or transfer it to a strategic [partner]. But now we’re seeing much more of a private-equity fund transferring it to another private-equity fund. So it’s liquidity for fund A and deployment of capital for fund B. That’s something we wouldn’t have seen 10 years ago.

NM: The other reality is that these activities are increasingly global. There’s a lot of talk about governments reducing red-tape bureaucracy and facilitating transactions. But the truth of the matter is, we live in an era of America First, suspicion of sovereign funds, national-security considerations, and political agendas that are focused on fostering local growth and local wealth creation.

Take the example of Northern Private Capital acquiring MDA from Maxar Technologies. These funds, when they’re investigating the regulatory implications domestically, need to look back to their investors and co-investors. It’s a much more complicated exercise. The involvement of these private-equity funds, which have sponsors with loud voices, makes those exercises if anything more complicated. The involvement in other transactions of co-investors from Chinese sovereign funds or Gulf State sovereign funds creates regulatory and political concern. It complicates these deals. But I guess the market is mature to the point where we can manage those complexities, weather those extended regulatory-scrutiny exercises, and achieve success.

Are there any upcoming projects you’re particularly excited about?

NM: The pipeline is full. In terms of what’s keeping us busy, we can discuss the way that some of our clients work. They invest in sectors, so Clairvest, we’ve done a lot of alternative-power deals for them and a lot of what they would call media deals: outdoor billboards or lead generation, and billboard ads on a website. For Evergreen, there’s a lot of focus on the AI space. We see a lot of activity in the more obvious sectors, and we expect a robust activity to continue.

This interview has been edited for length and clarity.

Related Articles

What the Seller-Friendly Market Means for Private Equity


by Best Lawyers

JP Bogden and Kurt Sarno of 2019 Canadian "Law Firm of the Year" award-winner Blakes discuss trends in the private equity sector.

Blakes 2019 "Law Firm of the Year" Interview

The 2021 Best Lawyers in Canada


by Best Lawyers

Featuring the top legal talent in Canada.

Best Lawyers Canada 2021 Homepage Image

The 2021 "Law Firm of the Year" Awards in Canada


by Best Lawyers

We are excited to announce the recipients of the 2021 "Law Firm of the Year" awards in Canada.

2021 Law Firm of the Year Awards in Canada

Leading the Evolution in Workplace Law


by Best Lawyers

Colin G.M. Gibson discusses workplace safety, issues such as raising the minimum wage, and job-protected leaves. 

An Interview With Harris & Company

Davies Points to “Groupthink” as Contributor to Industry Stagnation


by Best Lawyers

The 2019 Canaidan "Law Firm of the Year" honoree for Competitions/Antitrust Law shares the keys to their success.

Davies "Law Firm of the Year" Q&A

Gowling WLG Attorneys Discuss Aboriginal Law in Canada


by Best Lawyers

Gowling WLG won the 2019 "Law Firm of the Year" award for Aboriginal Law in Canada.

Gowling WLG "Law Firm of the Year" Q&A

Fasken Attorneys on Their 2019 "Law Firm of the Year" Award Win


by Best Lawyers

Lawyers from the Canadian firm discus their employment law practice and the changes coming to the Canadain legal market.

Fasken Law Firm of the Year Q&A

Announcing The Best Lawyers in Germany™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Germany.

Black, red and yellow stripes

Announcing The Best Lawyers in Switzerland™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Switzerland.

Red flag with white cross

Announcing The Best Lawyers in Austria™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Austria.

Red and white stripes

Announcing The Best Lawyers in Italy™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Italy.

Green, white and red stripes

How To Prepare a Strong Personal Injury Claim in Canada


by Lawyer Submitted

If you suffer injuries due to an accident or other incident, you should take several steps to prepare a solid personal injury claim in Canada.

Personal Injury Claims in Canada

There’s Hope for the Canadian Real Estate Market Post COVID-19


by Steven Tulman

Clover Mortgage offers advice and predictions on the Toronto real estate market as we move on post-pandemic.

Canadian Real Estate Market Post COVID-19

Breaking Down Criminal Conviction in Canada


by Best Lawyers

Statistics Canada’s annual breakdown of adult criminal court data provides an eye-opening review of how the country’s court system resolves its hundreds of thousands of cases annually.

Canada's Criminal Court Patterns Are Changing

Canada “Lawyer of the Year” 2022


by Best Lawyers

Richard Vachon is honored as 2022 "Lawyer of the Year" in Montréal, Canada for Defamation and Media Law.

Canada “Lawyer of the Year” 2022

Announcing the 2022 Canada's Best Lawyers Publication


by Best Lawyers

Featuring the top legal talent in Canada.

2022 Canada's Best Lawyers Publication

Trending Articles

The Real Camille: An Interview with Johnny Depp’s Lawyer Camille Vasquez


by Rebecca Blackwell

Camille Vasquez, a young lawyer at Brown Rudnick, sat down with Best Lawyers CEO Phillip Greer to talk about her distinguished career, recently being named partner and what comes next for her.

Camille Vasquez in office

Announcing The Best Lawyers in The United Kingdom™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from the United Kingdom.

The Best Lawyers in The United Kingdom 2023

Johnny Depp and Amber Heard: The Best Lawyers Honorees Behind the Litigation


by Gregory Sirico

Best Lawyers takes a look at the recognized legal talent representing Johnny Depp and Amber Heard in their ongoing defamation trial.

Lawyers for Johnny Depp and Amber Heard

Announcing The Best Lawyers in France™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from France.

Blue, white and red strips

Announcing The Best Lawyers in Germany™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Germany.

Black, red and yellow stripes

Education by Trial: Cultivating Legal Expertise in the Courtroom


by Margo Pierce

The intricacies of complex lawsuits require extensive knowledge of the legal precedent. But they also demand a high level of skill in every discipline needed to succeed at trial, such as analyzing technical reports and deposing expert witnesses.

Cultivating Legal Expertise in the Courtroom

Announcing The Best Lawyers in Belgium™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Belgium.

Black, yellow and red stripes

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

Announcing the 2022 Best Lawyers™ in France


by Best Lawyers

The results include an elite field of top lawyers and firms, including our inaugural Best Lawyers: Ones to Watch recipients.

Announcing the 2022 Best Lawyers™ in France

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Announcing the 2022 Best Lawyers™ in Germany


by Best Lawyers

The results include an elite field of top lawyers and firms, including our inaugural Best Lawyers: Ones to Watch recipients.

Announcing the 2022 Best Lawyers™ in Germany

We Are Women, We Are Fearless


by Deborah S. Chang and Justin Smulison

Athea Trial Lawyers is a female owned and operated law firm specializing in civil litigation, catastrophic energy, wrongful death and product liability.

Athea Trial Law Female Leadership and Success

U.K. Introduces Revisions to Right-to-Work Scheme and Immigration Rules


by Gregory Sirico

Right-to-Work Scheme and Immigration Rules in

Famous Songs Unprotected by Copyright Could Mean Royalties for Some


by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?

Destiny Fulfilled


by Sara Collin

Was Angela Reddock-Wright destined to become a lawyer? It sure seems that way. Yet her path was circuitous. This accomplished employment attorney, turned mediator, arbitrator and ADR specialist nonpareil discusses her career, the role of attorneys in society, the new world of post-pandemic work and why new Supreme Court Justice Ketanji Brown Jackson represents the future.

Interview with Lawyer Angela Reddock-Wright

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?