Canada’s industry minister is preparing for raids on some of Canada’s most promising digital and research-oriented companies in 2021.
“I had a lengthy conversation with (Finance Minister) Chrystia Freeland about this,” Navdeep Bains said in a year-end interview. “There’s a lot of economic activity out there. There’s a lot of Canadian tech companies we’ve built over the past number of years. We’ve got to protect those Canadian companies to the extent that they can stay in Canada and scale here in Canada.”
That will please business leaders such as Jim Balsillie, the former co-CEO of the company that created the BlackBerry smartphone, who insists Canada should be more aggressive in protecting homegrown technology stars, lest we repeat a history that includes the development of many automobile factories, but no actual automobile makers.
Bains’s comments came in response to a question about whether he was worried about what looked like a run on Canadian intellectual property, much of which taxpayers would have backstopped at some point in its development.
We spoke by phone on Dec. 17. Two days earlier, International Business Machines Corp. announced that it had purchased Montreal’s Expertus Technologies Inc., which uses the cloud to process payments for banks and other financial institutions. Tens days before that, Britain’s Hg Capital LLP spent about $1 billion to become the majority shareholder of Calgary-based software firm Bennevity Inc.
At the end of November, ServiceNow Inc. of Santa Clara, California bought Montreal-based Element AI, which had been touted as the company that would lead the commercialization of Canada’s world-leading research in artificial intelligence. That transaction followed Nasdaq Inc.’s mid-November purchase of Verafin Inc., an impressive cyber-security firm based in St. John’s, Newfoundland and Labrador, for US$2.75 billion.
“I’m definitely keeping an eye on activities that are taking place,” Bains said. “Clearly, some people that have strong balance sheets will use this to consolidate their market share and acquire companies for growth. They will also do this to deal with their competition. So, I’m mindful of the fact that the market will do that.”
It says something about the times in which we live that an industry minister with hundreds of millions of dollars at his disposal struggles to crack the business pages.
But with the Bank of Canada creating some $4 billion per week to buy Government of Canada bonds, and Chrystia Freeland amplifying her status as the first woman to lead the Finance Department with a pledge to deploy as much as $100 billion in fiscal stimulus as soon as the health emergency passes, there has been little room for Bains in the COVID-19 narrative.
That will change if the story expands to include a modern twist on a old lament over Canada’s status as a branch-plant economy. The pandemic triggered one of the deepest recessions in history, but plenty of technology companies and wealthy investment funds barely noticed. The COVID-19 crisis has accelerated the shift to a digital economy, and the strong already are gobbling up the less-strong in a bid to control markets that will be extremely lucrative once authorities get the coronavirus under control.
Dax Dasilva, chief executive of Montreal-based Lightspeed POS Inc., described it as a “land grab” during an interview in November.
Lightspeed, which develops point-of-sale software and had a deep well of cash ahead of the crisis, spent about $1 billion this fall buying two American rivals, proving that many of Canada’s tech upstarts will be able to take care of themselves.
Those who can’t may find support in Ottawa. Bains’s conversations with Freeland led to an additional $250 million for the Strategic Innovation Fund in the fall economic update , which said the money would be used to, “ensure that innovative, intellectual property-rich firms have the support they need to face the challenges presented by COVID-19.”
The announcement received little attention at the time, as it was crowded out by bigger spending commitments, nor was it obvious that the money had a specific purpose. But in fact, the commitment was a recognition by the government that the post-COVID merger-and-acquisition scene will be wild, and that Canada could come out a net loser if unprepared.
Bains called the $250 million a “down payment,” suggesting more money is coming. The initial pledge was intended to give him additional flexibility to invest in “IP-rich” companies that might otherwise be claimed by international investors. The additional contribution is too small to allow Bains to become a player in negotiations involving bigger companies such as Verafin, but it might be enough to protect startups that have developed promising innovations, but are still too small to resist takeover.
“We’re focusing a lot of developing IP,” Bains said. “We want to see economic benefits here. That’s why we put money forward in the fall economic statement.”
Bains’s plans will irritate many in Canada’s policy establishment, which tends to disapprove of politicians inserting themselves into conversations between willing buyers and sellers. Balsillie has long accused the Ottawa establishment of putting intellectual purity ahead of recognizing how the world actually works.
The former group, which includes veteran bureaucrats and think-tankers that dictated the federal government’s approach to investment for three decades, appears to be losing the argument. Canada and other countries are getting increasingly comfortable with the idea that the state has a key role to play in the development of the digital economy.
“We were turning the corner,” Bains said, reflecting on how the technology industry has become a driver of investment and economic growth ahead of the pandemic. “We were able to do that because we had a strong industrial policy and innovation and skills plan.”
• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin
