Eric Stevens, senior partner of Norton Rose Fulbright in Montreal (Photo: courtesy)
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BUSINESS LAW. For several years, many mergers and acquisitions (M&A) have involved Canadian and foreign partners. Business lawyers redouble their vigilance in this type of transaction that may involve regulatory, fiscal and political issues.
Acquisitions of Canadian companies by foreign firms remain at historically high levels, but Canada remains more of a buyer than a seller. In 2019, no less than 942 M&A saw Canadian companies take over foreign firms, worth $ 152 billion ($ B), according to Bloomberg. In the same year, 530 M&A were carried out in the opposite direction, for a value of $ 89 billion. A similar dynamic also prevailed in 2020.
Between 2000 and 2018, more than half of the firms swallowed up by our companies were in the United States, according to the international association Institute for Mergers, Acquisitions and Alliances (IMAA). Eight out of ten Canadian companies passed into foreign hands were bought by Americans.
Fortunately, Norton Rose Fulbright has 11 offices in the United States. “We route a lot of transactions to our American colleagues, so we become a big client for them,” explains Me Eric Stevens, senior partner at Norton Rose Fulbright in Montreal. A local company that does business with us will be treated like a large firm, even if its transaction is not of such high financial value. This will make the process smoother and faster. “
M&A with partners outside of North America can get even more complicated. “Even with European countries, cultural differences can cause frustration,” Stevens warns. The sense of urgency to close a deal is not necessarily the same outside of North America – causing delays – and contractual terms may differ. ”
To remain vigilant
According to Me Charles Spector, partner at Dentons in Montreal, “two elements always hold attention in an international M&A: regulation and taxation”. In Canada, acquisitions by foreign firms are governed in particular by the Competition Act and the Investment Canada Act (LIC). Rarely used, the LIC was used by the Canadian government to reject the purchase of TMAC Resources by the Chinese Shandong Gold in December 2020. Shandong Gold executives said at the time that the Canadian government was invoking “national security reasons” for justify his refusal.
“You have to understand the regulations and local taxation, but also the political or popular reactions that the announcement of an acquisition can provoke, in order to prevent the risks”, underlines Me Spector. Thus, in France, Couche-Tard has broken its teeth on the resistance of the government of Emmanuel Macron by trying to swallow the Carrefour food chain. The project finally collapsed last January.
With nearly 13,000 lawyers in more than 200 cities and 80 countries, Dentons is the largest law firm in the world. Its polycentric approach allows each region to act as a decision-making center for its territory. “We rely on a very well-established international platform and we easily find trusted lawyers in the various markets,” says Me Seon Kang, partner and director of the commercial law group and companies in the Montreal office of Dentons.
Last June, the firm announced the launch of Dentons Global Advisors, a multidisciplinary consulting firm chaired by former US Secretary of State Madeleine Albright. His role is notably to support Dentons clients on aspects such as commercial diplomacy, commercial and geopolitical risks and transactions.
Profits before politics
Are international M&A suffering from rising geopolitical tensions, especially between China and the United States? “It can play, especially if the foreign company is owned by a State or perceived as very close to a government and that the transaction takes place in a sensitive sector such as energy and critical infrastructure, recognizes Me Karl Tabbakh,” Managing Partner of McCarthy Tétrault in Quebec. Hence the importance of planning well in advance. “
His firm has an office in New York and another in London. As co-leader of McCarthy Tétrault’s international business strategy, Mr. Tabbakh himself spends a lot of time developing relationships with colleagues abroad, in order to be able to rely on trusted partners in the various markets.
For his part, Me Kang reminds that companies first and foremost pursue business opportunities. “If geopolitics make a market or transaction less attractive, some customers may become more nervous, but if the opportunity remains good, they will move on,” she says.
Many Quebec businesses are going through phases of rapid growth these days. Business lawyers play an important role in promoting the achievement of their strategic objectives, while managing risks well.
A new company is generally born from a good idea, which it must know how to defend. Avocados can therefore arrive very early in the life of a seedling. “We help protect and promote the idea or innovation that lies at the heart of the company,” explains Me Dominique Babin, associate lawyer at BCF Business Law firm. We need to identify the best strategy – be it a patent, trademark, industrial design or whatever – and then orchestrate the ownership of intellectual property among stakeholders. “
Lawyers also support the organization of the company, for example its incorporation and the arrangement of relations between shareholders. “Our primary role is not to solve problems, but to prevent them,” explains Me Babin. If the business is well structured and the functions and responsibilities of each partner are clear, the risks of litigation become much lower. “
Ditto for contracts with external partners such as suppliers, distributors, financiers, even customers. “Without allies, the company will not be able to grow, so it is essential to properly negotiate contracts with these stakeholders”, notes the lawyer. Depending on the needs, the business lawyer also ensures that the company is well supported by lawyers specializing in labor law, taxation, environmental law, etc.
Business advisers
Business lawyers are not just legal advisers, they are primarily business advisers. “Business law does not exist in isolation, outside of the client’s strategy,” confirms Me Étienne Brassard, associate lawyer at Lavery law firm. The added value comes from integrating the expertise of business lawyers into this strategy. “
It is therefore essential that they understand the short, medium and long-term objectives of the company, as well as the particularities of its industry and its market. For this reason, Me Brassard prefers to be present upstream rather than just when a company undertakes an important process such as financing or an acquisition. “It’s crucial to know where the company wants to go,” he says. Will she seek financing in order to make an acquisition? If she buys a business, is it to make it grow or to sell it quickly? ”
Same story with Me Jean-Simon Deschênes, associate lawyer at Langlois Avocats. “We provide a lot of support to companies in targeting growth opportunities and in analyzing legal or business risks associated with the various operations being considered,” he summarizes. For example, the lawyer identifies the rules that will apply if the company tries to launch a new product, enter a foreign market or make an acquisition, here or in another country.
A dynamic sector
During the first three months of the pandemic, in 2020, Quebec companies found themselves more in protection mode than in search of growth. Some have had to make rapid overhauls in the organization of work and the delivery of products or services, and sometimes even change the nature of their mission.
“If the most affected sectors such as catering, tourism and culture remain in catch-up mode, several others, in particular information technologies and the health sector, have quickly adapted and are experiencing significant growth”, emphasizes Me Deschênes. The Quebec economy regained at the end of summer 2020 what it had lost in the spring. It even grew 1.53% in fall 2020, its best quarter in 20 years.
Me Brassard recalls for his part that the market is full of available capital to finance business growth projects. The pandemic, if it changes the way of doing business – among other things by limiting travel and face-to-face meetings – also creates favorable opportunities. “It also highlighted the competitive advantages of some more agile companies, which had already taken the digital turn and learned to integrate teleworking,” he says. These firms are well placed to grow. “
Me Dominique Babin believes that business law has a bright future ahead of it, in particular to support growth projects. “Businesses will always need good, experienced business advisers,” she believes. Legal training gives lawyers great skills to properly analyze situations and generate interesting solutions to the challenges their clients face. “
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