Canada’s stance on protectionism

Repeated headlines in the past year related to President Trump and his “America First” strategy and the struggles faced by British Prime Minister Theresa May as she leads Britain post-Brexit have convinced many that protectionism now pervades the new world order. Not only are restrictions on physical borders imposed, the flow of investments and trade are inevitable topics being negotiated vehemently by world leaders.

Despite the protectionist rhetoric expressed throughout the globe, Bank of Canada Governor Stephen Poloz argued that “committing to openness has always been the right choice” because “[Canada’s] history shows that it takes a world to raise a nation, and nation building works best in an environment of openness for trade, people and investment”, during a speech he gave at Durham College.

How might protectionism impact us?

According to forecasts by Financier and Thomson Reuters, protectionism will impact megadeals and make big, transforming deals look difficult but more smaller deals will be expected. While the general sentiment for stakeholders in Canada suggest that protectionism remains a threat to deals in the pipeline and risk to businesses, some have suggested that Canada’s openness to markets will give it the competitive edge it needs to differentiate itself from other countries on a global M&A perspective.

EY’s 2017 Global Capital Confidence Barometer listed Canada as the 5th top investment destinations and indicated that management have and will continue to place a greater focus on North America. This is consistent with the findings from our previous post, M&A trends for 2017: Canada a likely target and according to the Intralinks Deal Flow Predictor Q4 2017, their predictive model is forecasting that the number of announced M&A deals in North America in the full year of 2017 will increase by around 10 percent year-over-year.

The importance of due diligence

From a buyer’s perspective, EY and Financier have emphasized the importance of proper due diligence so management can better understand the assets they are intending to acquire and be better equipped to respond to contingencies if the deal involves strategic assets that are likely to be subject to protectionist controls. In this new protectionist environment, targeting and making sure the right deals are struck is already half the battle.

The author would like to thank Jenny Ng, Articling Student, for her assistance in preparing this legal update.

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