CETA to boost M&A

The Canada-European Union Comprehensive Economic Trade Agreement (CETA) will come into preliminary effect on 21 September 2017. CETA will eliminate 98% of the EU tariffs.

Introduction

CETA will eliminate 98% of the EU tariffs as well as several no non-tariff trade barriers. Furthermore, the protection of Intellectual Property (IP) rights will be increased and European companies will get access to public procurement in Canada.

The industries which profit most from these changes are food, beverage, agricultural products as well as motor vehicles and parts since the elimination of tariffs is most relevant in these areas.

Positive impact on M&A activities

Especially in the current political environment in the US, CETA will bring the trade connections between Canada and the EU to the top of the priority list of Canadian companies. It can therefore be expected that not only cross-border trade will increase but also cross-border Mergers & Aquisitions (M&A) activities.

This is true for both ways - European companies acquiring in Canada and Canadian companies acquiring in Europe. Canadian companies may consider investments in continental Europe since (in light of Brexit) existing UK (de facto London) hubs might not be best placed to serve the continent any more. These considerations are especially true for financial institutions and financial investors. Given the investment backlog in infrastructure in Europe, which should be resolved mid-term, investments in this area could be especially attractive for Canadian investors, including the Canadian pension funds.

For European companies acquisitions in Canada are particularly attractive because Canada and Europe may currently be perceived to have closer cultural ties than Europe and the US. Further-more, access to the US market will be easier through Canada; Canadian subsidiaries of European companies may function as “gateways” to the US, supported by the North American Free Trade Agreement (NAFTA) as well as existing relationships between Canada and the US. Such acquisitions would be supported by the current exchange rate as well, also due to the increase of the threshold for foreign ownership restrictions which was increased from 600 mio CAD to 1.5bn CAD. In addition, Canadian data protection rules are seen as equal to the European rules. There-fore, an exchange of data between Canada and Europe is easy to handle - contrary to an ex-change with the US since one cannot take for granted that the “privacy shield” which replaced the “safe harbor” concept will stand if challenged in front of the European Court.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.