Study: Cross-border acquisitions

Canadian firms acquired foreign companies at a faster pace between 1997 and 2002 than foreign firms acquired companies in Canada, according to a new study.

In addition, the study showed that Canadian companies leaned towards acquiring US technology, while American firms were after Canada's energy companies.

This study analyses cross-border mergers and acquisitions from a Canadian perspective. It examines both non-resident takeovers of Canadian companies and Canadian takeovers of foreign companies by industry and region from 1997 to 2002. The analysis also highlights the use of share-exchanges as a means to finance these acquisitions.

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

Canadian firms acquired 447 foreign companies, transactions which are called "outward," while foreign companies acquired 345 Canadian companies, or "inward" transactions.

In terms of value, however, foreign companies invested slightly more in Canada during the six-year period. This was primarily the result of one extremely large European acquisition of a prominent Canadian company in 2000.

Foreign companies acquired $144 billion worth of Canadian companies, while Canadian firms acquired $124 billion of foreign companies.

Europe edged out the United States as the largest acquirer of Canadian companies during the six-year period. This slight edge for Europe was primarily the result of the same 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 US companies over the six-year period.

The most active industrial sector grouping was energy and minerals. This sector accounted for over one-quarter of the number of inward mergers and acquisitions, and over one-fifth of the outward.

The energy and minerals sector accounted for almost one-third (31%) of the $144 billion worth of Canadian firms purchased by foreign companies between 1997 and 2002.

American firms invested heavily in Canada's oil patch during this six-year period. Just under $32 billion of Canadian energy companies or assets were acquired during this period, most of them by American companies.

Canadian companies acquired a significant number of foreign companies in the high-tech electrical and electronics sector. High-tech accounted for about $54 billion, or 43%, of the value of all outward acquisitions during this period.

The high level of activity in cross-border mergers coincided with the heavy use of share-exchanges to finance acquisitions. The high-tech sector was the most prolific user of share-exchanges over the period. For example, in 2000 over one-half of all inward share-exchanges, and over two-thirds of all outward share-exchanges, were in the high-tech sector.

Definitions, data sources and methods: survey number 1534.

The analytical article Cross-Border Acquisitions: A Canadian Perspective (11-621-MIE2004013, free) is now available online in the Analysis in Brief series. From the Our products and services page, under Browse our Internet publications, choose Free, then Trade.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Michael Marth (613-951-6868), Balance of Payments Division.