International acquisition as a strategic growth avenue

Why consider buying a business outside Canada?

Ambitious Canadian companies that want to expand eventually start looking beyond their borders. Some of the biggest corporate success stories in the country were built on foreign acquisitions. “Global competition is fierce—if you stay small, you may disappear,” says Louise Langevin, Vice President of BDC’s Growth & Transition Capital team. “We need more large Canadian companies. If an acquisition abroad makes sense for your business, go for it.”

Diversifying your pool of customers is a smart investment. You are no longer dependent on one country, which will cushion the effects of an economic slowdown in your home market. From a regulation standpoint, Canada’s free-trade and investment agreements take away some of the risk of doing business in dozens of countries.

While exporting your products or selling services abroad may seem more manageable than buying a local company outright, don’t let the challenge deter you if it makes sense for your business. Technology has made gathering information easier, and data sharing safer. You will still need to go on the ground, but you can streamline the process.

What are the benefits of buying a business abroad?

From a business standpoint, an acquisition outside Canada offers the same advantages as any acquisition: new clients, extra revenue and a chance to create economies of scale. If you buy a supplier, for instance, you will likely improve profit margins.

Going abroad has its own incentives, too. It gives you access to a new pool of talent, sometimes at a lower cost than at home. It brings you closer to existing and potential clients, supported by local staff that understands the culture and the language.

The company you acquire may also already have permits or accreditations that would have taken you years to obtain, adds Langevin.

And don’t underestimate the positive impact on your brand, both for employees and financiers.

“In the tech industry, being seen as more global, with large, international clients, can boost your profile and help you widen your fundraising market. It can also indirectly help maximize your valuation,” says Jean-Philippe Poissant, Managing Director, Growth and Transition Capital.

What are the pitfalls of international acquisition?

Integrating your new foreign business is often the biggest challenge. “You really need an integration plan when buying in a different culture. And you’ll need to adjust your plan because unexpected things will happen,” advises Charles Blouin, Managing Director, Growth and Transition Capital.

Be ready to lose employees to a competitor. Conversely, local labor laws might make it hard for you to cut staff. Language can also become an unexpected issue. One of Blouin’s clients discovered most of his new employees didn’t speak English well enough to communicate with colleagues in other countries.

Tips for improving your odds of success.

Does international acquisition make sense for your business?

If you’ve never done an acquisition before, you need to start by taking a hard look at your company to assess whether it is strong and mature enough for such a time-consuming process.

Some questions to ask yourself:

• Is the business doing well?
• Do I have internal crises I need to solve first?
• Are roles and responsibilities within the company clear?
• Do we have a strong decision-making process?

“You have to be in a good place, in a good position to work on this project and do it well,” explains Langevin, adding that business owners are already under a lot of pressure and often understaffed. “You shouldn’t find yourself in a situation where you lose focus on your current business because everyone is focused on the acquisition.”

Choosing the right company to acquire is also key. Keep a clear head. As attractive as it may be, your target should be in line with your strategy. Listen to your leadership team and to your financial partners. They too can help you identify the right opportunity.

Getting started

Unless you already have a market or a company in mind (such as a foreign competitor), you should start the process by stating what you are trying to achieve. Are you trying to lower your reliance on a large client? Consolidate your supply chain? Outgrow your home market? Once you start identifying countries and companies, go back and assess them against that goal.
 
Here are a few tips for conducting your research:

• Reach out to people with local experience. It could be one of your suppliers, or a Canadian company that operates in that country. Canadian trade commissioners can also help you find the relevant contacts.
• Consider attending a fair or a conference in the market that caught your attention. While some of the research can be done online, speaking with people on the ground and making in-person contact remain proven methods.
• Make sure you understand the legal, fiscal and cultural aspects that differ from your home market and could become hurdles later on. Is the cost worth it?

Depending on your staffing and your budget, you could outsource some or all of the early-stage foreign acquisition process. Don’t hesitate to test your ideas with trusted partners, such as your banker or your accountant. They may have supported acquisitions in the same country you want to enter.

Next step

Ensure a smooth transition when buying or selling a business with a loan tailored to your needs.