Cross-Border Acquisitions: A Canadian Perspective

"Globalization has affected the way companies operate in a number of ways. Over the years, enterprises have increasingly expanded beyond their domestic markets to participate in the global marketplace. In so doing, companies can choose, for example, to export, establish new operations or acquire existing companies.

Activity in cross-border mergers and acquisitions in recent years involving Canadian companies was relatively intense in terms of both numbers and values.

Canadian firms acquired foreign companies at a faster pace than foreign firms were acquiring companies in Canada.

Between 1997 and 2002, Canadian firms acquired 447 foreign companies, transactions which are called “outward”, while foreign companies acquired 345 Canadian companies, so-called “inward” transactions.

Europe edged out the United States as the largest acquirer of Canadian companies during the six-year period. This slight edge for Europe was due primarily to the same extremely large acquisition in 2000. In fact, in all years other than 2000, the United States invested significantly more through acquisitions in Canada than did Europe. The United States was the primary destination for acquisitions, accounting for over two-thirds of all outward mergers and acquisitions. Canada was a net acquirer of U.S. companies over the six-year period."

via:  Statistics Canada

Cross Border Properties

Comments

[Scott D. Relf]

I have found that many of our clients conducting acquisitions of Canadian companies are surprised at some of the commercial regulations in Canada with respect to the range and classification of potential entity structures. Second, many are unaware of the significant employment regulations faced upon the acquisition within certain provinces. I have found that being in a unique position to provide legal services in both Canada and the U.S. has been of value to my clients in terms of efficiency and cost control with respect to closing on such transactions. I would recommend that any foreign based party seeking to purchase a Canadian company use similar services in order to obtain an excellent persepective on the range of potential issues involved in the closing. Scott D. Relf, Berry Moorman P.C.

[Kristofer Hansen]

I absolutely agree that any company or investor contemplating a cross border acquisition needs the help of attorneys and accountants that understand these very specific issues. The sooner professionals like yourself can get involved in the process the better. It is all to easy to assume that business entities will operate the same way on both sides of the border which is not always the case. A common issue that I have seen is the use of the LLC (limited liability company) entity for Canadian investors in the US. As LLCs become more popular in the US it is easy for a Canadian investor to get talked into holding their US interest in an LLC if they are not using a cross border professional the understands the issues. Canada recognizes LLCs much differently then the US does, which can lead to some significant tax issues. Thanks for the post and if I have a cross border client in your area I will keep you in mind.