Canadian Lawyer InHouse

37 CANAdIANLAwyERMAG.COM/INhOUSE october 2014 I n d u s t r y S p o t l i g h t dairy for exported products are going abroad and establishing operations where dairy production isn't restricted. "By buying busi- nesses outside of the country, they are able to expand their businesses in a way they're not able to do in Canada," MacGowan says. Canadian businesses that have dairy sup- pliers abroad may not need them forever, though. "There's strong economic com- mentary from economists and policy mark- ers saying this supply-management system in Canada is a lose-lose," MacGowan says. "Canadian consumers pay far more than they would if we didn't have the system in place, but it's also a major loss for the in- dustries because they can't grow the way they should be able to." He believes it's only a matter of time before the federal govern- ment dismantles the supply-management system. He says at least some of the M&A activity is generated by global companies betting supply management won't last much longer. "The time to make an acquisition is right now, given the huge potential for growth that may come in the future." REVENUE REPAIR PROJECTS Even if the potential for growth is substan- tial, it has been hard for some companies to grow recently. They face a fundamental rev- enue challenge — and that's why they pay substantial sums for good acquisitions. "The top lines for many companies are not growing," Maharaj says. "That's espe- cially true for packaged-food companies." He points to a couple of reasons: price pres- sure from cost-conscious retailers and con- sumers, and increased competition from fast-serve restaurants. "Subway is offering breakfast. McDonalds and Tim Hortons are doing breakfast better than they ever have. Those are taking away from food companies' revenues." In laste August it was announced Burger King, perhaps in an effort to compete more seriously in the breakfast/coffee market, was merging with iconic Canadian coffee chain Tim Hortons. "If you can't grow, you have to fi nd [rev- enue] somewhere," Maharaj says, complet- ing the thought: many businesses merge and acquire to improve revenues. Business managers may think this is the time to buy, but government regulators are wary. "The biggest challenge is anti- trust legislation and competition act leg- islation," Maharaj says. "Competition bu- reaus around the world are looking at these mergers closely. That could prevent further large-scale acquisitions." The market for food is changing accord- ing to global population trends as well. Countries where people used to struggle to afford high-quality products are becom- ing relatively affl uent. "As income goes up, they want more protein and they want more calories," says Lucas Thacker, associate at Norton Rose Fulbright LLP. Brooke Valentine, partner in the corpo- rate fi nance practice at PwC says companies in the meat sector are hot. He notes the ac- tivity surrounding Hillshire Brands, maker of Jimmy Dean sausages. Two other compa- nies, Tyson Foods Inc. and Pilgrim's Pride Corp. fought each other to take it over. Tyson knocked Pilgrim's Pride out of con- tention, offering US $63-per-share — well above Pilgrim's US $8-per-share offer. Ty- son's price "pushed valuation beyond where most investors thought it would pan out," Valentine says. I n d u s t r y S p o t l i g h t there's strong economic commentary from economists and policy markers saying this supply-management system in canada is a lose-lose. Peter MAcGoWAN, blake cassels & Graydon LLP '' '' ''

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