The new investment into Vancouver-based Lions Gate Entertainment Corp. Tuesday by the other, less-famous Microsoft Corp. co-founder, Paul Allen, was more than just a big vote of confidence in the struggling young television and film concern.
The $33.2-million (U.S.) stake by a group that included the Microsoft billionaire is the latest chunk of American capital to land in British Columbia.
While the flow of Asian capital into B.C. real estate provided plenty of international investment into the province during the eighties and nineties, observers say that is now being supplanted with capital from south of the border. And more often than not, it is landing in the province's blossoming high-tech sector -- software, Internet companies, biotechs and the like.
A breakdown of the exact amount of American investments into individual provinces is not done by the provincial or federal governments, economists say, but they've noticed trends.
"With the combination of the Asian crisis and the souring of [Asian]people on British Columbia because of its business climate, there has definitely been a falling off of Asian capital into B.C.," said Jock Finlayson, vice-president of policy and analysts at the Business Council of British Columbia, an employers' group. "The main foreign investment we've witnessed in recent years is from U.S. to B.C. businesses."
The money isn't coming in the form of new projects, such as aluminum smelters the likes of which former premier Glen Clark liked to boast about, "it's from takeovers," Mr. Finlayson said.
The province's resource and other sectors have certainly been recipients of U.S. takeover money. Weyerhaeuser Co.'s stock purchase of British Columbia's icon of the woods MacMillan Bloedel Ltd. last year was the most spectacular example. Even Microsoft indirectly invested in the resource sector when an investment company of co-founder Bill Gates bought $12-million worth of Pan American Silver Corp. of Vancouver, giving him a 10-per-cent holding.
But analysts believe the incursion of the greenback is destined mainly for the B.C. tech sector, a $5.2-billion (Canadian) industry that boasts 46,100 jobs.
"There's no question that there's an increasing amount of interest from U.S. investors in the high-potential technology deals in B.C.," said Steve Hnatiuk, a technology executive with consulting company PricewaterhouseCoopers in Vancouver. "B.C. companies are finding their way on the radar screen in the U.S."
"High tech is the only game in town," agreed Maria Pinelli, a partner in the high-tech group of Ernst & Young in Vancouver. "It sure is hot."
Some recent pricey acquisitions by U.S. players of B.C. companies include California high-tech company Broadcom Corp.'s purchase last summer of HotHaus Technologies Inc., a small Vancouver software company, for about $414-million. And in the fall, Redback Networks Inc. of Sunnyvale, Calif., merged with the 40-employee Vancouver software development office of Mountain View, Calif.-based Siara Systems. The deal was worth $4.3-billion (U.S.).
B.C. companies are well aware of the strong U.S. interest in the province's tech companies, so many have chosen the Nasdaq Stock Market -- rather than a Canadian one -- to list their shares. Creo Products Inc., a digital printing company in Burnaby, and Pivotal Corp., a software and E-commerce systems provider in Vancouver, are two examples.
Even star high-tech American executives are feeling the lure of B.C.'s tech world. Former Microsoft chief financial officer Greg Maffei quit that job to head Worldwide Fiber Inc., a much smaller Vancouver company that makes high-speed fibre-optic networks.
The appeal is this: "We have a lot of world-class technology being developed here," PWC's Mr. Hnatiuk said. And with competition to get in on Silicon Valley tech deals getting more fierce, Americans are looking up the coast and across the border for opportunities, he added.
With the low Canadian dollar -- relative to the U.S. greenback -- the price tags on Canadian companies are more realistic than the stratospheric valuations of some American firms. And venture capital companies scouting for deals get a good hearing in British Columbia, Mr. Hnatiuk said.
Foreign investment can profoundly affect a local economy. The last time a bullish Asia-Pacific economy woke up to British Columbia -- the invasion of Hong Kong and other Asian money in the eighties into the province's real estate sector -- a sleepy housing market became the most expensive in the country, and the Vancouver skyline was forever changed. Concord Pacific, a state-of-the-art condo community on the shores of Vancouver's False Creek, got started through Asian billionaire Li Ka-shing.
But when Hong Kong reverted back to Chinese rule in 1997, and some investors got fed up with the province's high taxes and choking bureaucracy, many investors and their capital departed.
Observers see major differences between the Asian money and the high-tech investments now entering. While a byproduct of the wash of Asian capital was the creation of a great deal of housing -- much of it prohibitively expensive -- analysts believe the wealth being flung off by the hot American economy into British Columbia will help ease its deficit-wracked, overtaxed economy, which is struggling with a downturn in the resources sector.
"High-tech generates high-paying jobs," Mr. Hnatiuk said, "and in terms of the spinoff benefits for the broader B.C. economy, there's no question that will help."
He said tech deals are not being driven by speculation on future prices, as with real estate transactions, "but on the strength of management and the quality of technologies."
Because the tech sector pays high salaries ($56,000 a year on average) and brings about rich deals, wealth generation is a characteristic and another plus for the province, he says.
Also, federal government tax credits give the industry a shot in the arm, Ernst & Young's Ms. Pinelli said.
However, a survey by the British Columbia Technology Industries Association (BCTIA) found that among the 216 chief executive officers of B.C. tech companies polled for its recent ReportCard 99, 80 per cent rated the province as ineffective on that front.
There are always risks that when a U.S. company comes calling, the talent may eventually move from British Columbia. That hasn't happened at Electronic Arts Canada, a division of the California software entertainment giant Electronic Arts Inc. At the company's facility in suburban Vancouver, the payroll has grown to 550 employees from 85, which was the head count when the parent bought out Distinctive Software, an entertainment software company created by EA's current president of Worldwide Studios, Don Mattrick.
Yet Paul Lee, chief operating officer at the Worldwide Studios in Burnaby and chair of the BCTIA, said that when a U.S. firm buys a company in British Columbia, the work force may stay, but the local operations stop growing as rapidly. "Growth here [in Burnaby]has slowed, and we have shifted projects that could have been done here to somewhere else in the EA world."
The ReportCard 99 survey supports that. It found that while the CEOs planned to increase their total employment by 27 per cent in the next year, two of every five new jobs will be created outside of British Columbia, bringing the job growth rate down to 16 per cent.
The high personal income tax rate in the province (the top marginal rate is over 52 per cent) is the main culprit that risks making the sector uncompetitive, Mr. Lee said. When a high-tech employee can take home 30 to 40 per cent more pay just by crossing the border, "you get concerned about the risk [of losing talent]" Mr. Lee would rather see tax breaks than incentives. "We need these handcuffs taken off so we can compete."
The ReportCard says CEOs in the sector find it difficult hiring top managers because of the tax rates. Electronic Arts' Mr. Lee agrees: "We've got great people and technology in B.C., but haven't been able to get to the next level, so we sell our companies to those that have management. If we can't get management talent in, we can't get these companies to grow."
Credit Union Central economist Helmut Pastrick said another reality of the sector is that while it is strong, growing and full of quality people and ideas, it doesn't contribute to that much of the overall provincial economy yet.
He pointed to B.C. government statistics that show the sector represented 3.1 per cent of the province's total gross domestic product in 1997. That's in comparison to the U.S. figure of 20 per cent of total economic output.
Ms. Pinelli believes that with the interest from the United States, and the quality of the local industry, the province will have staying power and will continue to grow. But she warned that the vital ingredient in the success of a high-tech company is speed in getting a product to market -- and that depends on adequate financing. The lack of speed is the sector's greatest risk.
"You don't know where emerging technology will come from. If it's brought to market immediately, it could make your product obsolete."