FDI through acquisition: The BioVectra example

In the old days (when I was active in the FDI attraction biz), we were 100 percent focused on attracting greenfield investments.   In other words, we were trying to attract a firm from somewhere else to establish a manufacturing facility, call centre, software development studio, etc. here to service export markets.

Nowadays it is just as likely — even more likely – that FDI is flowing into the region via acquisition.  The latest version of this is PEI’s BioVectra which is  being purchased by a US pharma.   There have been a pile of examples from Ocean Nutrition to Radian6.  I don’t have any data to back this up but my hunch is that far more FDI has flowed into this region via acquisition in recent years than greenfield (excluding the energy sector).

This has become an awkward issue for investmen attraction agencies.    On the one hand, it is FDI coming into the region and a large chunk of that FDI will flow around the region in the form of new tax revenue, seed money for new startups, new jobs in other sectors, etc.   However, politicians and others grumble about the loss of corporate control.  They bemoan thte locus of control over investment, jobs and even philanthropic spending shifting outside the region.

And they have a point – up to a point.  In the end, we cannot and should not restrict this kind of inward investment and I would argue in some sectors we should be encouraging it.

The life sciences sector across North America has been one that has almost exclusively grown through this cycle of research – entrepreneurship – scale – acquisition – more research – more entrepreneurship – more scale – more acquisition.  When I looked at it last year, I couldn’t find a serious LS cluster in North America that didn’t exhibit this cycle and it was very hard to find examples of big pharma setting up greenfield operations anywhere.  In fact, they have been retrenching in many locations.

So, should investment promotion agencies be actively pursuing this kind of FDI?

That is a very controversial idea.  The concept of NSBI or INB or Innovation PEI working with its LS or IT or manufacturing firms to help them sell to outside interests is one that will get folks riled up.  Again, I think it needs to be looked at.  Ideally, NB firms would become the acquirers  – there is an engineering firm in Freddy that has been buying up smaller foreign firms – but even they will likely be swallowed up someday.

The key is to foster an ecosystem where a new round of entrepreneurs step up and the cycle continues.  Bought out senior management can seed new start-ups.  Some highly talented staff prefer smaller firms to the large corporate culture (some but certainly not all).   I am not demonizing big firms – many will stay and grow here but their ultimately leadership is elsewhere.

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2 Responses to FDI through acquisition: The BioVectra example

  1. mikel says:

    Every deal is going to be different. Frankly, I would be surprised if ANY government employee in PEI had anything at all to do with this. The fact is, a company is owned by shareholders, and it is their decision to sell or not, they really need no ‘help’ from government.

    In this case, the company is remaining independant, and the ultimate sale price will be determined by its success. The CEO says IF the company grows as its expected to, the ultimate deal could be worth up to $100 million. So at least in the short term it sounds like a good deal since the more they grow and succeed, the more money they’ll make.

    But some red flags could be the fact that the deal may have been spurred on by some short selling by investors who plunged the stock price of the purchaser Questcor because of some ‘questionable marketing practices’-even though the company exceeded its profit goals (just to point out that its not just government that makes bad business decisions-even ‘the market’ will plunge a stock even though the company is making hordes of money). Part of the deal is aimed at ‘vertical integration’ and getting access to BioVectra’s trade secrets, which could mean long term trouble-being ‘vertically integrated’ with one company may make it harder to do business with others.

    On the public policy side, I looked for subsidies to BioVEctra, they got 1 million from ACOA in transfer payments, but it looks like a well run company, so I don’t think provincial money would be out of line. To counter Mr.Amin’s notion that New Brunswick is ‘special’ when it comes to public policy, I did notice that BioVectra had to go to the Supreme Court to get zoning regulations changed to keep developers from building apartment buildings right next to dangerous chemical storage tanks.

    It seems that the city built a road on provincial land without authorization, which came later after the road was built and it was rezoned residential right in their backyard. So it seems government incompetence is by no means restricted to New Brunswick, and this company, which should be worried about its business, instead has to worry about stupidity like this.

    I thought I’d take an opportunity not to be contrary and say that I agree very much with David’s opinion. The life sciences are unlike other industries as they are highly reliant on PEOPLE’S knowledge, and it is very difficult to relocate that. But its unknown just how much of their final product is ‘assembly line’ products that could be done anywhere.

    Being bought by a larger company would actually be BENEFICIAL, because many life science companies are developed by university professors marketing their research, or products from their research. Most of these people are NOT business people, so ‘getting sold’ is about the best thing that can happen, and its even better if it stays rooted in the university, because the ‘knowledge base’ becomes very localized and harder to move. The professors train their students, who become the next generation of employees. One problem with this has been the commercialization of university research, and thats no small issue.

  2. I am all for investments that create the basis for startups and new enterprises, things like Propel ICT, but publicly funded, at a much larger scale. As you say,

    > The key is to foster an ecosystem where a new round of entrepreneurs step up and the cycle continues.

    But where is the Moncton business incubation centre? Where for that matter are the social infrastructure that would allow us to develop expertise in pretty much everything else, from the arts to commercial media to science and technology?

    We spend most of our development money instead making useless payments to large corporations who export jobs and profits elsewhere.

    Nobody in this province will support economic development until the focus turns to developing and supporting *ourselves* rather than the giants and the sharks.

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