Doyle-ITAC report says Canada must act to slow foreign takeovers of our high-tech firms

A new report by veteran high-tech financier Denny Doyle is calling on industry and the federal government to take steps to discourage the takeover of promising Canadian companies by foreign buyers. The new study conducted by Doyletech Corp for the Information Technology Association of Canada (ITAC) says that Canada needs to initiate a series of measures to improve the adds of growing high-tech firms into viable multinational companies. Otherwise, foreign interests will continue to acquire Canadian firms and relocate all but the R&D functions to the US or Europe. The report can be obtained at www.itac.ca.

Among the measures Doyle proposes is the development of larger pools of venture capital (VC) to provide larger amounts of capital to early-stage firms and the formation of larger pools of buy-out capital to facilitate management buyouts. Otherwise, Canadian firms will continue to be truncated, with only one or two functions left in Canada while the sales, marketing, operation and profits flow outside the country.

The so-called hollowing out phenomenon has been cited as a greater threat than brain drain, and generally occurs when the Canadian firms are purchased by strategic rather than financial buyers. Doyle says government should be aware of the differences between the two types of buyers and focus on financial buyers.

“If Canada wants more R&D activity it should pursue policies that will attract strategic buyers, but if it wants to grow large world-class companies, financial buyers are a better bet,” states the report.

Entitled, Building World Class Canadian High Technology Companies, the Doyle report also recommends that labour-sponsored venture capital firms should be encouraged to form syndicates to increase the capital pool available for buy-outs. And it says there needs to be a clarification between what industry understands as a head office and the definition employed by Statistics Canada. Doyle also urges StatsCan to begin measuring foreign direct investment as it relates to high-tech.

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