Tariffs, M&A And "Ordinary Course Of Business" Covenants

Overview and Key Takeaways

A tariff war between the U.S. and Canada would be highly unusual. What, then, would be an "ordinary course" reaction by a Canadian target to such unprecedented circumstances?

In our previous update, we explored the complex interaction of tariffs and "material adverse effect" ("MAE") clauses in M&A. We now explore the equally complex interaction of tariffs and "ordinary course of business" covenants ("ordinary course covenants") in M&A.

Our key practical takeaways include:

• Every Canadian company's individual exposure to tariffs would be unique. How the target may wish to respond to any tariffs may be equally unique. Ordinary course covenants are well-suited for this variability by being inherently customizable. Whether buyer or seller, foresight and negotiation strategy is critical.