In business as in life, choosing partners that are a good fit with you and your management team is an important piece of the puzzle when optimizing the success of your international expansion. Once you’re able to clearly articulate your goals and how you plan to achieve them, it’s time to evaluate your choice of partners based on how well their value proposition aligns with and supports your growth strategy. Here are four steps to follow when choosing partners to help expand your business internationally.
Paying for the right legal advice may be the best money you ever spend. As the expression goes, do not be penny wise and pound foolish when it comes to managing legal fees. We have observed time and again that it is less expensive for our customers to engage a legal firm with specialized experience in the financing of companies. This is true even when the hourly rate of the specialized legal counsel is higher than the local generalist, who may be more accustomed to a mix of family law or property disputes.
A legal specialist will deliver what is required quickly and competently, saving you time and money. We have dealt with our clients’ legal counsel here and abroad. The wrong counsel can cause undue delay and significantly increase the costs of a transaction at the expense of your Canadian firm. As you navigate unknown waters, it’s best not to use your own dime to pay for a lawyer’s learning curve.
Growing in international markets means potential changes to your organizational structure. Pay attention to how this may impact your legal and financial costs and risks.
It helps to have a long-term view when making binding decisions on your ownership structure. For example, the creation of affiliates, the jurisdiction of registration, the ownership and reporting lines, will impact the costs of raising capital for your company. We often encounter businesses that establish a subsidiary and foreign affiliate structure with the sole objective of minimizing taxes. It looks good at first. But a greater number of corporate entities in multiple jurisdictions can increase the legal costs of borrowing money. It can also make borrowing more complicated. For example, setting up a separate company for each component of the business: one company for the assets, one company for the sales, one company to hold the shares, etc., Each of these entities may be required (as borrower or guarantor) to hold a loan transaction together. The associated fees increase with the number of parties and legal jurisdictions to the loan agreement every time you need to raise financing, regardless of the amount.
We can’t prepare for every future possibility. But the cost of funding or unwinding an unwieldy organizational structure can be a material burden that acts as a drag against a company’s growth momentum.
When choosing your banking partners, it is best to pick the bank that is most aligned to support your growth strategy. Again, look at the long term, when choosing financial partners. A niche partner that can’t grow with you will eventually have to be unwound. This can be costly and messy. It’s always best not to crowd out your balance sheet with multiple financial partners.
The best banking partner is flexible, demonstrates patience and shares with you a willingness and capacity to do business overseas. Explore options with local banks in foreign markets, who may offer financing based on your in-country assets and operations. This can reduce the financial commitment of your business in Canada.
Ideally, you want a bank partner, either here in Canada or internationally, who won’t limit your potential growth in Canada by leveraging all your assets in order to fund the international growth. Having such a partner in your growth project gives you the opportunity to continue funding future needs for your Canadian operations while building financial credibility in-market that can open the door for local financing options.
If you are looking to acquire land or buildings, a good environmental adviser will help you navigate local regulations and reduce your risks.
Depending on the local law, the responsibility to maintain or remediate a property to current and future environmental standards typically falls to the owner, regardless of when you took ownership. In extreme cases, the financial implications of this can be devastating to your business.
Compliance with remediation orders, for example, can overwhelm the property owner’s capacity to pay. This scenario often results in the courts ordering lien-holders on the property, (typically the bank holding the mortgage), to bear the costs. This implied financial responsibility is the reason banks may not be willing to lend money using your property as collateral. It may also be difficult to sell your property. All these things can depress the value of your asset.
A good environmental advisor will uncover past use and the current state of the property before you purchase and alert you to your potential legal and financial risks, contingencies, and give you tools to mitigate the risks.
How EDC can help you find and work with partners internationally
EDC has several solutions available to support Canadian companies in the expansion of their operations internationally. We provide market intelligence and international connections to partners. Our sector-focused teams have a range of knowledge and expertise.
EDC can also provide capital solutions in partnership with your Canadian bank or directly, by lending to the foreign subsidiary or to the Canadian parent. We lend against the value of international assets and internationally-generated cash flows. That means we don’t have to rely solely on the Canadian operations for calculation of loan collateral or debt service. By looking at risk from a different angle, we’ve supported – and learned from – our customers success in a diverse range of international markets from Mexico to Morocco.
