Four years ago, Neovasc Inc., then known as Medical Ventures Corp., was a struggling medical-device incubator based in Vancouver.
“The company had some sales, but it wasn’t doing particularly well,” recalls chief executive officer Alexei Marko. Since 2001, it had gone through several incarnations and owners, but still wasn’t getting very far.
Mr. Marko, who joined the firm in 2005 after Medical Ventures acquired a small Canadian biotech firm he owned, was charged with improving the company’s financial situation, in collaboration with its chief financial officer. “We looked at technologies to bring into the company, either through [local] acquisition or internal development,” he recalls.
Then an investor he knew turned him on to two promising biotech firms based in Israel. Both had developed research-proven medical technologies in treating heart disease, but weren’t in a position to bring them to market. Mr. Marko’s company could handle the regulatory approvals and production through its manufacturing facility and commercialize the inventions.
So, in 2008, Mr. Marko’s company acquired both Israeli companies in a share transaction and changed its own name to Neovasc. Since then, the Vancouver-based company has been expanding its product offerings (mainly implantable heart valves and surgical tissue) and its customer base (it now sells globally).
The acquisitions “brought in new technologies, including our leading pipline product, a whole new platform to work on,” says Mr. Marko, whose 75-employee company generated sales of $5.25-million in 2011 and is on track to do more than $7-million this year.
They were “a catalyst that allowed us to play on the world stage,” he adds.
While foreign mergers and acquisitions may seem the stuff of larger companies, a growing number of smaller firms are opening their pocketbooks to pick up firms overseas, says business lawyer Philippe LeClerc, a Quebec City-based partner with McCarthy Tétrault LLP. “It may have been less common before, but more and more small Canadian firms will look to purchase foreign assets as they expand into foreign markets,” he says.
In Mr. LeClerc’s experience, foreign mergers and acquisitions are more common in certain industries. For instance, for biotech firms like Neovasc, it’s sometimes more cost-effective to acquire early-stage technologies belonging to another firm than to try to create something brand-new in-house. Instead of outsourcing technical services to foreign firms, as is common among many information technology companies, some choose to acquire whole foreign firms instead.
Across all industries, it can be advantageous for small Canadian businesses to purchase U.S. firms to “Americanize” their bids for lucrative contracts with U.S. government organizations, Mr. LeClerc adds.
There are other reasons a company might consider buying out a foreign firm. Last September, Victoria-based Angel Accessibility Solutions Ltd., which focuses on injury prevention in health care, became one of three owners of German manufacturer Beka-Hospitec.
For about five years, Angel had been distributing Beka’s bathtubs and patient lifts in Canada, says Angel president and CEO George Szwender. But last year, its supply began to dwindle as Beka struggled. On a business trip to Europe to meet with Beka management, he learned that the company was going under. So, along with a British distributor of Beka products and a Russian investor, a decision was made to jointly purchase the firm.
While a foreign acquisition hadn’t been a burning ambition for Mr. Szwender, it seemed like the smart way to go: Keeping Beka-Hospitec from disappearing meant his company maintained access to its products and could influence their design (Angel doesn’t manufacture the products it sells).
After about four months of “fandangling back and forth with the lawyers,” the deal was done. At the time it didn’t feel easy, but in hindsight, Mr. Szwender says they experienced no major speed bumps.. He figures that being in the right place at the right time, and knowing the company’s owner and management, ensured the process went smoothly.
While a foreign acquisition or merger can bring a wide range of benefits, there are also plenty of potential complications or obstacles. The biggest issues for small companies, says Mr. LeClerc, are a lack the resources, both in capital and personnel. “The time that the management team of a smaller company spends on an acquisition outside of Canada is time they won’t spend running the business here,” he notes.
While most deals can take weeks or months for the legal work to be completed, the “courtship” between a Canadian company and the company it wishes to purchase can take much longer.