Looking for the Silver Lining to Canada’s Corporate Hollowing Out
My first job in the industry was in sales at a relatively large institutional shop that had more foreign partners than I had boyfriends (including high school!). During my short tenure there, the firm changed its name four times! But then I got lucky.
Through a friend of mine, I ended up working in the private client services of Canada’s only in-house-built bank brokerage. I remember on my first day, the company’s founder came by my desk to welcome me aboard. I thought he was just doing his usual rounds, but my coworkers said he did that with every new employee. Finally, before I withdrew into the relatively safe waters of stock analysis, I spent a few crazy years on an institutional- trading desk. It was a small shop, but it still managed to pull off quite a few deals (mostly for our clients south of the border).
Now, hopefully I didn’t bore you with this abbreviated version of my CV for no good reason. The purpose of the intro was to tell you that I had the best seats in the house to a show I definitely didn’t want to see — the hollowing out of corporate Canada. It was, and still is, Canada’s worst cliché in action: meek and polite Canadians just handing over their businesses to whomever might come knocking, almost as if there is nothing to it.
I’ve lamented over the past months about the empty portion of the glass. So, what are investors to do about things that are out of their control? Well, for starters, we could talk about the full portion of that same glass. I know, some readers of PROFIT CONFIDENTIAL will say (and rightfully so) that not everything has a silver lining. But in the case of Canada’s hollowing out, there actually might be one.
Economists agree that Canada’s business cycle has almost gone full circle. So, buying Canadian businesses at premiums might not be the smartest thing that foreigners have done lately. As the cycle keeps on going, it is quite possible that many of those acquisitions could prove to be just deadweight tied around the acquirers’ necks.
Of course, I am not going to argue that all foreign acquisitions are bound to go sour in the longer term. There are quite a few money pools out there that religiously employ the old buy-and-hold investment strategy. But I do argue that there are also many so- called “strategic buyers” that have much shorter fuses and are very finicky.
So, what are Canadian investors to do after losing Inco Limited, Dofasco Incorporated, Four Seasons Hotels, Inc., and potentially Bell Canada Enterprises, etc., to foreigners? Well, the best I can offer at this point is the advice to wait a couple of years and watch for those short fuses to go off. Everything else being equal, Canadian bankers and pension funds should be armed and ready to buy back our lost assets.