It is not often that polls surprise me, but this one took my breath away. A Ipsos Reid poll commissioned by Postmedia discovered that “68 per cent of Canadians believe the Conservative government should block the sale of Canadian firms to all foreign investors.” This is a self-evidently disastrous idea, so I was shocked to see it garner so much support.
I’m curious to know why Canadians feel the way they do about foreign acquisitions; a follow-up poll would be helpful. It may be that there is a belief that Canadian firms are always the prey, not the purchaser. Foreign Direct Investment statistics, however, show that Canadian firms also invest heavily in foreign mergers and acquisitions (M&A). Perhaps there are concerns of foreign state owned enterprises, though a CPPIB purchase of Sweden’s Kista Galleria shows that Canada also plays this game.
The necessity for Canada to engage in foreign M&A is relatively straight forward. The most common mergers and acquisitions are between two companies that do similar things. A camera company buys a company that develops photo software, or two retail firms merge together to exploit economies of scale. In a mid-sized economy such as Canada, many of these deals will naturally cross borders, as often there are not two medium-or-large sized Canadian companies who perform similar tasks.
Entrepreneurs always have an exit strategy in the back of their minds – how will they divest themselves of the company they created when the time comes. Putting into place a rule that you cannot sell your business to American investors would be a great way of ensuring new businesses are started in the United States rather than Canada.
Imagine if you are a Canadian entrepreneur and you have a great idea that you believe will be the next big internet start-up. Would you stay in the country knowing that you could never sell your company to Google or Apple? Of course not, you would create your start-up in the United States -- and Canada would be that much poorer. The University of Waterloo may as well move to Waterloo, Ohio, if such a law were ever passed.
I have some personal experience in this area, as our company, Nexreg Compliance, has had a number of inquiries regarding the possibility of a merger or acquisition. All of these queries came from companies that offered services similar or related to ours. Not a single one of these companies was Canadian, which is not surprising given that there are very few companies in Canada that do what we do. It is a pretty specialized service.
Rules making it difficult for cross-country mergers and acquisitions would be a disaster for the Canadian economy. With significantly reduced new job creation, the Canadian economy would stagnate, with higher unemployment and lower wages. I believe Canadians, when given more than a few seconds to answer a poll question, realize that.