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The Nexen building in downtown Calgary, in file photo from July. The federal government recently approved the acquisition of Nexen Inc. by China’s CNOOC Ltd.


It is not often that polls surprise me, but this one took my breath away. A Ipsos Reid poll commissioned by Postmedia discovered that "68 per cent of Canadians believe the Conservative government should block the sale of Canadian firms to all foreign investors." This is a self-evidently disastrous idea, so I was shocked to see it garner so much support.

I'm curious to know why Canadians feel the way they do about foreign acquisitions; a follow-up poll would be helpful. It may be that there is a belief that Canadian firms are always the prey, not the purchaser. Foreign Direct Investment statistics, however, show that Canadian firms also invest heavily in foreign mergers and acquisitions (M&A). Perhaps there are concerns of foreign state owned enterprises, though a CPPIB purchase of Sweden's Kista Galleria shows that Canada also plays this game.

The necessity for Canada to engage in foreign M&A is relatively straight forward. The most common mergers and acquisitions are between two companies that do similar things. A camera company buys a company that develops photo software, or two retail firms merge together to exploit economies of scale. In a mid-sized economy such as Canada, many of these deals will naturally cross borders, as often there are not two medium-or-large sized Canadian companies who perform similar tasks.

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Entrepreneurs always have an exit strategy in the back of their minds – how will they divest themselves of the company they created when the time comes. Putting into place a rule that you cannot sell your business to American investors would be a great way of ensuring new businesses are started in the United States rather than Canada.

Imagine if you are a Canadian entrepreneur and you have a great idea that you believe will be the next big internet start-up. Would you stay in the country knowing that you could never sell your company to Google or Apple? Of course not, you would create your start-up in the United States -- and Canada would be that much poorer. The University of Waterloo may as well move to Waterloo, Ohio, if such a law were ever passed.

I have some personal experience in this area, as our company, Nexreg Compliance, has had a number of inquiries regarding the possibility of a merger or acquisition. All of these queries came from companies that offered services similar or related to ours. Not a single one of these companies was Canadian, which is not surprising given that there are very few companies in Canada that do what we do. It is a pretty specialized service.

Rules making it difficult for cross-country mergers and acquisitions would be a disaster for the Canadian economy. With significantly reduced new job creation, the Canadian economy would stagnate, with higher unemployment and lower wages. I believe Canadians, when given more than a few seconds to answer a poll question, realize that.

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About the Author

Mike Moffatt is an Assistant Professor in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business – Western University. Mike also does private sector consulting for the chemical industry. More


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