Growing evidence suggests Canada is holding its own in M&A tech battle with US

Screaming media headlines lamenting and denouncing Canadian high tech firm heading to the US are a distortion of the reality surrounding mergers and acquisitions (M&A) between the two countries, emerging evidence suggests. One fact is becoming clear: Canadian firms acquired by US-based companies generate far more press coverage than when Canadian companies snap up US rivals, and the tone of the coverage is often decidedly negative.

The most recent media outpouring occurred earlier this month when JDS Uniphase consolidated its head office in San Jose CA and Ottawa software firm Corel Corp was bought by venture capital firm Vector Capital of San Francisco.

Some experts say such knee-jerk reaction from the mainstream media is wrongheaded and often incorrect, adding to fears that Canadian industry is being “hallowed out”. M&A span a wide range of transactions, many of which can be beneficial or at least neutral for the country losing the head office. And the money received for selling a firm is often plowed back into new high tech ventures. Others contend that the tendency of fast-growing Canadian firms to be bought by US interests exposes a financing gap for firms requiring between $100 million and $300 million in fresh capital.

“Do we lose more when technology is controlled in the US or do we gain by using the money to start new start-ups,” asks Dr David Wolfe, a political science professor at the Univ of Toronto and co-director of the Program on Globalization and Regional Innovation Systems. “Do the key know-ledge assets stay here and get redeployed? If they do, we come out ahead.”

Wolfe says little research has been conducted on M&As involving Canada and other countries. But Industry Canada has compiled some data that show Canada fares far better than the negative media coverage would suggest.

Between 1996 and 2002 — a period that takes in the glory years of the high-tech boom — Canadian firms spent $148 billion buying US companies while US firms spent $109 billion buying Canadian companies. That includes M&As across all industry sectors, but the Industry Canada report notes that Canadians were outbuying the US in high-tech sectors such as electronics, chemicals and finance and insurance.

“Canadian direct investment is surpassing foreign direct investment and much of it is M&As,” says Someshwar Rao, Industry Canada’s director of strategic investment analysis. “It’s been significantly higher since 1996. We are a net exporter of capital.”

A recent Conference Board of Canada report argues that if a Canadian company is performing well, its activities, offices and key functions are likely to remain in Canada regardless of where ownership lies.

It’s a contention that resonates with David Sutcliffe chairman and CEO of Richmond BC-based Sierra Wireless Inc. He also hears the media cries of Canadian firms moving south and concurs that Canadian acquisitions of US firms are often ignored.

“The phenomenon is simply that well capitalized companies tend to make acquisitions over time,” says Sutcliffe.

Sierra Wireless recently acquired privately held AirPrime Inc of Carlsbad CA. Three years ago, it acquired the data modem business of industry giant Qualcom Inc, best known as the pioneer of Code Division Multiple Access (CDMA) technology.

Sutcliffe admits that Sierra Wireless management has considered relocating to the US, particularly around the time it went public in 1999 (and Glen Clark was BC premier). But he says they found no compelling reason to move and since that time the business climate has dramatically improved.

“There’s the Campbell government, but business and high-tech at the federal level has also improved,” he says. “The after tax difference with the US is much narrower than before. We are now able to attract people into executive jobs in Canada and BC from many countries including the US.”

As for fears surrounding the alleged hollowing out of the economy, they’re greatly overwrought says Univ of Ottawa professor Dr John de la Mothe. “Hollowing out is a bit of mythology., It’s too simplistic,” he says. “From a policy point of view, a more strategic approach would be to focus on how to develop the sectors we are interested in, good at and need to protect. We have to keep the value-added in Canada.”

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