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.