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Deal making at the speed of China Add to ...

Mark de Groot, managing partner at Virage Capital, knows all about the excruciating pace set by Chinese deal makers.

Conference calls at 11 a.m. in Montreal - that's midnight in Beijing - have had to end so that his Asian counterparts could hop on another call - at 1 in the morning. He has also been on the phone at 8 p.m. on a Friday evening, which means his partners are talking to him early Saturday morning in China.

The people on the other end of the line are not juniors doing the grunt work, either. They're high-ranking Chinese private equity players, akin to the chief investment officers of large Canadian funds like the Canada Pension Plan Investment Board.

Sometimes, "You get the impression that they work 24 hours a day, seven days a week," Mr. de Groot says.

Keeping pace with this gruelling schedule is just one of the necessities Canadians face as they reach out to the Chinese. They have no choice: The resource boom, for everything from copper to steel, is fuelled by China's rapid growth.

The Chinese have made big splashes here, with Sinopec International Petroleum Exploration and Production Co. buying a 9 per cent stake in Syncrude Canada Ltd. for $4.6-billion and, more recently, PetroChina Co. Ltd. signing a $5.4-billion joint venture with Encana Corp. to develop natural gas assets.

The first foreign representative office for China's sovereign wealth fund, China Investment Corp., also opened here, in Toronto in January - much to the chagrin of American and British lobbyists who pressed hard for such a high-profile office in their own countries.

Canadian brokerages, law firms and private equity players are trying to build on these foundations. Some, such as investment dealer Canaccord Genuity Corp., are buying companies in China to establish an immediate physical presence there. Investments such as these are being spurred by expectations of low-to-moderate Western economic growth over the next five to 10 years.

But it takes time to get a foot in the door, something Scotia Waterous Inc. knows after facilitating $10-billion in investments from Chinese oil giant Sinopec in 2010. That includes two blockbuster deals, one for a 40 per cent stake in Brazil's Repsol YPF SA and the other for full ownership of Occidental Petroleum Corp.'s Argentina unit. Both were pitched to Sinopec because Scotia knew exactly what the Chinese were looking for after working alongside them in the past, and sitting across the table from them when advising others.

Canadian businesses are also tackling other aspects of relationship building. Every Friday morning, for instance, partners and associates in the Toronto offices of blue-chip Canadian law firm Stikeman Elliott LLP take Mandarin classes.

Ditto for McCarthy Tétrault LLP. Joyce Lee, who speaks Mandarin and Cantonese and heads the firm's China practice from Vancouver, said her shop is developing a pipeline of Mandarin-speaking lawyers. But she also acknowledged that quick language courses, or Chinese etiquette classes, are no substitute for providing young Canadian lawyers with on-the-job experience.

Ms. Lee says she keeps Canadian office hours but also takes calls until midnight Vancouver time. "Chinese clients that we deal with these days are pretty sophisticated," the Hong Kong-born Ms. Lee said. You can't just put somebody in front of them "that knows their language and their culture and can please them - that's not enough."

Other firms are going all out. Blake Cassels & Graydon LLP, which advised Sinopec on its Syncrude deal, opened an office in Beijing and a shared office in Shanghai. Gowling Lafleur Henderson LLP plans to open a Beijing office this fall. Bennett Jones LLP opened one last year.

The merits of these forays are debatable. Some firms say the expenses of small offices are not worth it, since the specialized, high-powered deal teams that work on major transactions are based in Canada.

"A representative office of one or two people … those people aren't doing the work on one of these mega-deals," says Jay Kellerman of Stikeman Elliott LLP, who travels to China three times a year. "You need a team of 15 people to do it. You know what? You can fly direct Toronto to Beijing, last time I looked, and I can be there tomorrow if I was called today."

There is also a chance that the Chinese bubble will fizzle out, much like Japan.

As for the actual negotiations, Canadians who have worked on major deals say they aren't dealing with finance neophytes.

The Chinese "are well-known as being aggressive bidders, being competitive bidders," says Adam Waterous, who heads Scotia Waterous.

Although the Chinese "often have a reputation of being slower and perhaps more cumbersome to deal with than some Western companies, in our experience that's a fallacy," he says. Both his big 2010 transactions were highly sophisticated and they were completed, from initial pitch to public announcement, in just three months.

"We don't think there's a Western company that could have competed on speed."

Follow us on Twitter: @jeffreybgray, @timkiladze

 

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