Canadians hold their own when making foreign acquisitions

Contrary to what many people might think, more Canadian companies in the software arena have acquired foreign companies than foreign companies acquired Canadian, according to one industry insider.

“Most of what you see on foreign investment in Canada is the view that all the best Canadian companies are being taken over by foreigners. Well the truth of the matter is that if you examine the statistics you find out that it’s a two-way street,” said Ottawa-based David Paterson, national director, public affairs with the Canadian Advanced Technology Alliance (CATAAlliance) — a business development association dedicated to Canadian organizations. “Canadian high-tech companies are very active in the acquisition game.”

Paterson, who has been gathering information on mergers and acquisitions in the software and computer services industry since 1987 for the CATAAlliance, was also a specialist in the area when he worked at Industry Canada.

Earlier this month, Statistics Canada released some information on the flow of investment in and out of Canada, identifying the hardware side of the high-tech industry as one of the areas where there is a lot of activity weighing heavily in favour of Canada.

The study, called Cross-border Acquisitions: A Canadian Perspective, showed that Canadian companies in the electrical and electronic components industry made 86 foreign acquisitions valued at $53.8 billion from 1997 to 2002. Foreigners acquired only 62 Canadian companies worth $30.6 billion in the same timeframe.

Paterson’s numbers reflect similar findings, specifically in 2001 and 2001. For example, in 2001 Canadian software companies acquired 23 foreign companies for $951.9 million and foreign companies only spent $719.7 million.

“So this perception that all the good Canadian companies are being taken over is not correct,” he said. “It’s a much more balanced situation than people think first off.”

This means that Canada has a strong and aggressive high-tech industry and is very effective in the global market. Canada is also able to compete on a global scale, Paterson explained.

“It would be nice if foreigners never took over a Canadian high-tech company, but the reality of world markets is that it’s not the way the world works.”

In the past five years, the only time the numbers flew the other direction in support of the foreign companies, was in 2000. Paterson said this was the peak year in the dot-com boom and the activity in the mergers and acquisitions arena was dependent on swings in the equity markets. In 2000, foreigners paid $6.6 billion to acquire Canadian software companies but Canadians were spending just under half that with $3.4 billion.

Paterson said the Canadian government and the high-tech industry does a good job of investing in research and development, but more money needs to be spent on marketing.

“Marketing is where Canada comes out short,” he explained. “We need to do things like improve the program for export market development and try to make it easier for companies to raise venture capital or fund themselves.”

“Give Canadian entrepreneurs the tools they need to market their products,” he added.

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