Virtual deal-making will add to Canadian tech companies’ attractiveness, says lawyer
In what may be the new normal for M&A lawyers, on May 20, Insightful Science completed its acquisition of B.C.’s Cytapex Bioinformatics, in a transaction executed virtually — from start to close — between parties and lawyers who not once met face-to-face during the deal.
While the nature of the transaction was new, it has become the norm, says Mark Longo, co-chair of Osler Hoskin & Harcourt LLP’s emerging and high growth companies group and managing partner of the firm’s Vancouver office
“What we are seeing, during the last eight to 12 weeks, is deals are still happening,” he says. “We're doing a lot of venture financings. We're doing a lot of acquisition transactions, and I think this will be a trend towards more of a virtual means of conducting the deal. And that includes even up until closing.”
Virtual deal-making will be good news for Canadian technology companies, says Longo. With the remote process eliminating the geographical factor, Canadian businesses will be even more attractive for investment and acquisition, he says.
“You don't need to be in Silicon Valley,” says Longo. “With companies like Clio… and Shopify and others. The fact that there are great technology universities that that are spinning out talent in places like Vancouver and Toronto and elsewhere. In my mind, means that the acquirers and the venture capitalists are going to increasingly look to Canada as a place where you can acquire talented companies and talent.”
The San Diego, California-based Insightful Science is a technology company which designs software used by scientists in conducting research. Cytapex specializes in algorithms which analyse cytometry data, helping to improve and automate high-throughput and high-dimensional cytometry informatics for clinical research, biomarker discovery and clinical trials. Cytometry is the measurement of cell characteristics.
“The acquisition will add Cytapex to Insightful Science’s rapidly growing Bioinformatics division and will aid Insightful Science in the acceleration of scientific research and discovery through Cytapex’s algorithms,” said a press release from Insightful Science.
The deal began March 19, four days after the working-from-home order came down at Oslers. Longo got an email from Dr. Gabe Kalmar, entrepreneur in residence at E@UBC, the University of British Columbia’s incubator for technology-based ventures. Kalmar connected Longo with Ryan Brinkman, a UBC professor and CEO of Cytapex Bioinformatics, which is affiliated with E@UBC. The three then jumped on a Zoom call to discuss the acquisition offer from Insightful and their private equity sponsor, Insightful Ventures.
“Unlike in normal times, I would have set up an in-person meeting — shake the hands get relationships building that way,” says Longo. “There was really no time and opportunity for that in a COVID world. And so, we got to know each other by Zoom, by email, phone calls and so on. A couple days later, they received the draft of the letter of intent. From there we began the negotiations of the letters of intent, in parallel to due diligence, all through virtual means.”
In executing the deal remotely, there had to be a “heightened level of organization,” from closing checklists, planning calls with Insightful’s counsel and combing through documents in a virtual data room, Longo says.
“There was no opportunity for in-person diligence. So, everything had to happen via virtual data room or zoom, often combining the two,” he says.
Upon closing, the parties used DocuSign and another software which compiles all closing documents, he says, adding “it really does prove that you can do everything in a fully virtual mode.”
The deal was also unique in that Longo and his colleagues had never met Brinkman, Longo says. Typically, on deals of this nature, firms will be corporate counsel to a party and the relationship builds over a period of years, after which an immediate segue into a transaction is natural, he says. The challenge in the Cytapex transaction was building a relationship without face-to-face interaction, but Longo says he has found in this and other venture financings and acquisitions on which he’s engaged, that the pandemic’s shared experience — epitomized by having to meet by video-conference — is a great ice-breaker.
“Here we are in an COVID environment. Everyone's working from home. We've got dogs and cats coming on the screen. We have kids in the background. We have all sorts of different attire… you've got people in T shirts, gym clothes, you name it.”
“What I've actually found is, in a way, that actually assists in the building of relationships because you're seeing people in their home, you're seeing people at a more personal level than if you're sitting in a boardroom and you're wearing a jacket and everyone's prim and proper.”