A resource-rich home territory remains the focus for Canadian firms but growing client globalisation is pulling them to Latin America and Africa
Canadian firms, as with most around the world, are looking to widen their friendship circle in the fast-growing emerging markets, but movement towards resource-rich countries remains cautious and is unlikely to turn into a stampede any time soon.
“There’s always been an interest in Latin America from Canadian mining companies, but few Canadian law firms have opened offices in the region,” observes Toronto-based Baker & McKenzie partner Kevin Coon, who is confident that the firm’s new Peru office will bring its Canadian arm more work and new clients. “Many have opted for the safer bet of forming best-friend relationships, partly because less stable economies can make firms gun-shy but also because some of the [Canadian firms] that have embraced globalisation have got stung.”
Indeed, fortune does not always favour the brave. But the links between Canada and its energy-rich friends in Latin America and Africa are becoming more apparent as the markets stabilise and clients start to invest. In Latin America, for example, Canadian investors outside the traditional energy and mining sector are looking to benefit from the region’s growing middle class – an interest that will expand the legal to-do list for firms with a presence in both regions.
Montreal-based Dorel Industries, for example, bought a 70 per cent stake in a group of companies that sell car seats and high chairs across Chile, Bolivia, Peru and Argentina in 2011 while Toronto-based insurance company Ingle International expanded into Chile, Argentina and Brazil in December 2012.
“The business environment has changed dramatically and therefore so has the legal market,” continues Coon. “If you look at the link in the mining sector between Canada and Latin America alongside the number of Canadian companies now doing business in the region, it would make sense for more
Canadian firms to be there so they don’t lose clients to international firms with offices on the ground.
“There’s no question that we get more work compared to our competitors that don’t have offices in the region because [being there] becomes a door to being counsel to clients in many sectors, not just mining.
While local lawyers agree there is a need for Canadian firms to boost their presence in Latin America, many admit the market is not the easiest to enter.
“In the past few years we have seen a growing trend of firms either consolidating or expanding into resource focused markets such as Africa, Australia and, now, South America,” says Fasken Martineau’s managing partner David Corbett.
“But South America raises challenges for law firms. For example, there are restrictions limiting global law firm expansion into Brazil. However, the continent is rich with natural resources and there will be a desire to service that market.”
For now, Canadian firms taking the plunge seem to be looking to South Africa for pals to pair up with. Following in the footsteps of the three-way merger between Canadian firm Ogilvy Renault, Norton Rose and South Africa’s Deneys Reitz in 2010, Fasken Martineau combined forces with South Africa’s Bell Dewar in October last year.
“Canadian mining investment in Africa is second only to South Africa’s,” said Corbett after The Lawyer tipped the firm to team up with a South African law firm in July. “The interest has grown in the past 10 years and we’re simply following our clients.”
Canada-based clients are certainly looking to Africa as a place for investment. According to reports quoting Canada’s trade ministry, roughly 100 Canadian companies are understood to be operating in mineral-rich and politically secure Ghana, and mutual merchandise trade between Canada and oil-producing Nigeria equalled more than $2.7bn (£1.7bn) in 2011 – up 61 per cent on 2010.
“Everyone’s talking about Africa as the next big emerging market,” says Coon, pointing out that Bakers recently added Johannesburg firm Rudolph Bernstein & Associates to its growing South African presence.
Comparing South Africa with Latin America, he continues: “Maybe it’s the relative stability of South Africa that’s attracting more Canadian firms to merge in the region. Canadian firms recognise the expense of opening an office in a new region, so tend to go for something bigger and less risky by merging.”
The Rose buds
The tripartite Norton Rose merger in 2010 was followed by a further Canadian tie-up in 2011 with Macleod Dixon, which gave the enlarged firm a presence in Latin America through Macleod Dixon’s Venezuela and Colombia offices.
“Brazil is big on our radar right now – we’ve done quite a lot of work with Latin America this year,” enthuses Norton Rose Canada’s managing partner John Coleman, who points out that Canada has free trade agreements with Colombia, Mexico, Costa Rica, Chile and Peru, and is in negotiations with Honduras and Panama.
Indeed, the past year has seen the Colombian and Canadian offices of the firm work together on various multimillion-dollar deals, including Pacific Rubiales Energy’s $252.4m acquisition of PetroMagdalena Energy and a completed $100m offering for Gran Colombia Gold, a Canada-based, Colombia-focused gold and silver exploration, development and production company.
“It’s our experience that having lawyers on the ground makes a huge difference compared to flying in and out,” continues Coleman, although he concedes that this method of working can be effective in Latin America.
Others also argue this point, saying that Canadian firms do not need to be on the ground to benefit from the emerging markets.
“We enjoy opportunities back and forth with Latin America, but it’s on a client by client basis. Our core focus is Canada and Canada continues to be a robust market for natural resources and mining,” says Brock Gibson, chair of Canadian firm Blakes. “For us, the recession was mild to non-existent. Although there was a slowdown in Canada because of constraints on capital we didn’t have the same experience as other traditional markets.
“In the past year or two the US has enjoyed an uptick in shale gas and in Canada most of our key areas, such as energy, mining and financial services M&A, are active. Although Africa is rich in resources and is an area of interest for Canadian firms, I don’t predict a huge trend towards firms opening offices or merging in the region.”
Oil sands bid
Gibson also points to Canada’s new foreign investment framework, whereby the government decided in December that it would not deliver control of its oil sands to state-owned companies outside Canada in future. It followed the approval of China’s $15.1bn bid for energy company Nexen. Although the bidding company, China National Offshore Oil Corporation, has pledged to maintain Nexen’s Calgary head office Canadian prime minister Stephen Harper has said that further foreign state control of oil sands would not benefit Canada – suggesting that more pure Canadian M&A deals are, or should be, off the agenda.
Nevertheless, the market will not be exempt from globalisation.
“We see the market becoming more internationally focused either through expansion, mergers or alliances,” confirms Corbett when asked how he sees the future of the Canadian legal market. “The recent mergers of several international firms with Canadian firms reinforces that view.”
But slow and steady is the name of the game, and while firms are eyeing these regions with curiosity, few think 2013 will see a rush by Canadian firms into the emerging markets.
Will there be any surprises this year?
“I’ve learnt to expect the unexpected – you think one practice area will be slow and another active, then you get a surprise,” laughs Coleman. “As much as we love to plan, the old adage remains true: men plan, God laughs.”
GDP (US$, 2011): 1.736tr
Annual inflation (October 2012): 1.2%
Population (October 2012): 35,002,447
Life expectancy at birth: 81
Unemployment rate (November 2012): 7.2%
Source: World Bank, Statistics Canada