CETA – A Catalyst for Cross-border M&A

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The Canada-European Union (EU) Comprehensive Economic Trade Agreement (CETA) will eliminate 98 per cent of all EU tariffs and a host of non-tariff trade barriers. We can already see that the impact in both markets will be significant. 
This is especially true in the food, beverage, agricultural products, motor vehicles and parts, household appliances, chemicals, plastics and metals industries, where the elimination of tariffs will translate into huge cost savings in the trade of goods. 

Accelerating growth through acquisition

CETA will also encourage Canadian and EU companies to look at opportunities for increased cross-border trade and investment — one of the biggest being M&A activity. In fact, EU companies with significant global operations are already looking at accelerating growth more efficiently in Canada by way of acquisitions than through more traditional greenfield investments. And it is no wonder given the lower Canadian dollar and the high productivity of European best-in-class manufacturers.  
At first, Canada can expect to see increased M&A activity in industries where tariffs have traditionally been high; for example, food and beverage, agriculture, chemicals, rubbers and plastics, and the automotive sectors, and market leaders playing early mover roles to gain market access through acquisitions. Inbound investment will likely focus on acquiring Canadian companies that are not only market leaders in Canada, but also give EU businesses a chance to further penetrate the US market.  

Services and infrastructure to play key roles

Another area of increased M&A activity will likely be the services sector, as CETA also eliminates non-tariff barriers, encouraging unified technical standards and allowing professionals and individuals working within the same companies to freely cross borders.  
As well, because CETA opens procurement opportunities for Canadian and EU companies to bid on public infrastructure at all levels, we are likely to see more acquisitions of infrastructure companies as EU and Canadian infrastructure, construction and consulting firms gain access to each other’s respective markets.

Canada to become gateway between US and EU
CETA gives Canada preferential access to the EU and US, the world’s two largest markets. Most importantly, companies in the US and EU can now use Canada to access their respective markets and, over time, increased M&A activity will not only flow between the EU and Canada, but also between the US and Canada, as US companies look for greater access to the EU. In this way, CETA positions Canada effectively as a “gateway” to EU and US companies looking to access their respective markets — and Canadian M&A activity will increase as a result.
CETA’s preferential rules for direct investments by EU companies in Canada will further boost M&A activity. The threshold for government review of foreign investments by EU countries coming into Canada will be $1.5 billion — a significantly higher threshold than for other non-domestic take-overs. The higher threshold will promote Canada as a place to invest and make it easier for Canadian companies to attract foreign buyers.

Canadian companies are in the M&A driver’s seat
While it is still early days, CETA presents new and significant opportunities for cross-border M&A activity in Canada. Over the next few years, Canada may become one of the world’s key hotspots for trade and investment, drawing the attention of global companies across the EU and US looking to expand into new markets more cost-effectively. 
Canadian companies can not only leverage the benefits of CETA to cash in on this added attention from both sides of the pond, but look for M&A deals themselves to expand into the huge EU market and further solidify their presence in the US. CETA puts Canadian companies in the M&A driver’s seat — and the road is wide open.
For a comprehensive report on CETA, please visit www.stikeman.com/CETA
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