It has become increasingly difficult to deny that we live in an age of technological innovation – particularly entrepreneurial innovation. Many cities across Canada contain the components of an ideal start-up environment: a diverse culture receptive to innovation, top quality educational institutions, and willing investors. According to a 2012 report by Canadian Business, Western Canada has become somewhat of a start-up “hot spot”, with 3.7% of British Columbia’s working population owning a start-up, which the report defines as a business under two years of age. Unsurprisingly, then, start-ups play an important role in Canada’s economy.
But how does this role of start-ups impact M&A? The answer, is seems, is significantly. Last year, PwC published a report indicating that upwards of 63% of owners of emerging companies are actually looking to leave their companies – quickly – as opposed to seeing their businesses grow. Indeed, M&A is a solid option for entrepreneurs because it enables them to profit from their efforts, and allows their start-up to develop more fully than it would have been able to otherwise, given the entrepreneur’s potentially limited access to resources and business experience.
Similarly, M&A is a good option for buyers of start-ups because it offers them the opportunity to profit from talented individuals with innovative ideas, who may not have sufficient capital to run their businesses on their own. Although buyers are likely to be interested in start-ups that have established products and proven revenue streams, there has nonetheless been a marked shift in the past few years towards acquisitions of start-ups comprised of increasingly smaller teams, i.e, a trend away from pure-play acqui-hires.
Many Canadian start-ups are acquired by international companies (primarily American). This brings to light another trend, in which foreign companies are acquiring Canadian start-ups. From a socio-cultural perspective, it is arguable that this trend is contributing to a less uniquely Canadian, and more global culture. From an economics perspective, this new trend hints towards a more global, fluid economy, rather than one that is limited by jurisdictional boundaries.
M&A has, and will continue to have, an important role to play in facilitating innovation. It is already enabling Canadian entrepreneurs to partake in technological innovation in the form of start-ups, and interact to a larger degree with the global economy. It will surely be in the near future when their larger impact on the Canadian cultures, societies, and economy will be evident.
The author would like to thank Melanie Simon, summer student, for her assistance in preparing this legal update.
Stay informed on M&A developments and subscribe to our blog today.