Foreign ownership issue divides IT industry associations

The Canadian Advanced Technology Alliance Wednesday sought to refute an impression it says was created by the Information Technology Association of Canada that Canada is in danger

of losing its successful high-tech firms through foreign acquisition.

CATA released a statement that drew attention to data it publishes regularly on mergers and acquisitions (M&As) and said that in the last five years, Canadian software companies acquired more foreign companies than vice-versa. It also pointed to a recent study from Statistics Canada, called “”Cross-Border Acquisitions: A Canadian Perspective,”” which showed Canadian companies in electric and electronic components acquiring 86 foreign firms, versus only 62 acquisitions of Canadian companies by foreign firms.

David Paterson, CATA’s national director of public affairs, said the statement was in direct response to a position paper from Ottawa-based Doyletech Corp. that argued many Canadian technology companies are purchased by foreign companies at an early stage, taking jobs to the United States or elsewhere. The Doyletech paper, titled “”Building World-Class Technology Companies,”” was sponsored by ITAC.

“”It’s basically a rant against foreign takeovers,”” Paterson said. “”One of the things that they complain about is there are no statistics on the inflow and outflow of capital in the high-tech industry. Well, I’ve been collecting that information since 1987 and CATA has been publishing it since 1999 on the software industry.””

ITAC vice-president of communications and research Lynda Leonard said the CATA reaction took her by surprise.

“”This is interesting in that, at one point, this was going to be a CATA-ITAC collaboration,”” she said. “”CATA was basically seeking a third-party funder and couldn’t find it in the end and had to withdraw from the project. At least, that’s what was told to us.””

Denzil Doyle, the ITAC paper’s author, was travelling on Wednesday and unavailable for comment, but Doyletech managing partner Glen McDougall corroborated Leonard’s story.

“”They were not only a partner, but a very interested and active partner, and their partnership ended when they couldn’t raise the funds to be part of the work,”” he said.

Paterson said he had no knowledge of any participation in the Doyletech paper on CATA’s part.

Even with CATA’s data and the StatsCan study, there are still concerns for the Canadian industry’s future, Leonard added.

“”It’s not just a numbers game. It’s not just an inflow and outflow of deals,”” she said. “”The point we’re trying to make is take a look at mature companies, and the role that mature companies play in cluster development. If we’re losing those, we’re losing something that’s fundamentally of value in terms of its ability to seed other ventures, to provide the talent for emerging companies out of the gate.””

McDougall agreed. “”It’s two issues that have certain ties, but they’re not the same,”” he said.

Paterson said it was natural to regret the loss of Canadian-owned high-tech firms but that M&As could produce “”serial entrepreneurs”” who could take their experience in one company and create another, bigger one.

“”(The fear of foreign M&As) is always out there. People pay a lot of attention to it, but they don’t look at the other side of the coin,”” he said. “”If you recognize that something new has come on the market for which you expect to be strong demand, it is sometimes much more efficient to buy one of the existing players than it is to start from scratch and build your own.””

In two of the past five years that CATA has collected data on software M&As, the value of the foreign companies acquired exceeded the value of the Canadian ones bought by foreigners.

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