The Canadian economy enjoyed a robust period of significant gains in 2017, with GDP growing by 3 per cent in 2017,but is now starting to cool off, with growth falling to 2.1 per cent in the first half of 2018 (according to Trading Economics). Continued low rates of business investment, falls in household consumption and the impact of trade disputes with the US have caused further knocks to economic growth. Despite this, in general lawyers noted that their practice areas tend to be healthy, albeit slightly more competitive than before. Corporate immigration, for instance, remains a highly active field, as Canada markets itself to skilled international workers and companies looking to grow their North American presence, particularly those dissuaded by the increasingly hard-line approach in the US. Additionally, mining, M&A and the banking sector reported good levels of work and interest in the face of concerns regarding a slowing economy.
Products derived from the mining and natural resources sectors, such as crude oil, minerals and precious metals, account for over one-third of total exports in 2017. Exploration and harvesting of Canada’s natural resources has traditionally been a highly profitable industry, with practitioners in the space noting that after a drop-off in activity, “mining is on the upswing” as “commodities are increasing”. Practitioners highlighted the increase in investment in the area, stating that “more and more money is being spent on exploration” while noting that the growth is driven not just by domestic activity, but also by the presence of Canadian firms abroad, in jurisdictions such as South America and Africa. However, mining work in Canada continues to draw investors who benefit from the stability of the jurisdiction, with the industry in general bouncing back after a brief lapse.
Mirroring the high levels of activity in mining, the transactional space continues to be strong, with lawyers noting good levels of inbound and outbound M&A, in addition to a booming domestic market across a range of industries, particularly energy and mining. They concede that IPOs have fallen in consistency and size, but highlight that capital markets are driving the sector, which as one source affirms is “creating an environment of buying and selling”. Another source highlights the increasing interest of US private equity firms in the Canadian market, who value the fact that the “pricing is softer here”. An idiosyncratic Canadian influence on the market is the recent legalisation of recreational cannabis use, which practitioners identify as a hot topic that is having a substantial effect on the M&A market. Consolidation and significant interest in breaking into the business are driving M&A activity, with one source referencing a large number of mandates they are seeing in the area as businesses seek to tap into the fast-developing market. However, one practitioner we spoke to urged caution, warning that the potential hiking of interest rates might have an impact on M&A, as “multiples will come down”.
Perhaps one of the best indicators of the interplay between the Canadian economy and the legal market is seen in the restructuring and insolvency area. As one source mentioned, “Insolvency has been slower, which is a great indicator for the economy, as we see record low unemployment and a healthy economic marker.” Others noted that the recent boom in restructuring work triggered by the continued instability of the retail market is “tending to slow down”. Work in the mining and oil and gas sectors has helped the market, however, following numerous restructurings resulting from the fall in oil and gas prices. Nevertheless, as the mining industry regains its footing, there is a chance that insolvency work in this area will begin to dry up. In general, practitioners state that it is a competitive market, but with work available to those intent on pursuing it. Some point to the NAFTA replacement and trade disputes with the US as a potential source of future insolvencies, but overall, the competition in the market points to a currently strong economy.
A continued bright light in the Canadian legal market is the corporate immigration field, which is benefitting from Canadian policy at both federal and provincial levels, with the government seeking to attract skilled workers. These efforts extend to an additional focus on skilled foreign nationals who are already in Canada on student or working visas and making Canada an attractive place to stay. Additionally, the technology sector in the country is favoured by the continued attractiveness of Canadian immigration policy, buoyed by the stance of the Trump administration in the US, resulting in tightened immigration rules. Practitioners note, however, that the Canadian open-arms position is not likely to last forever, as they see a “contrary trend in which the granting of foreign-worker visas are becoming less common”, with Canadian companies subject to increased labour standard compliance checks and obligations to prove they have made an effort to hire Canadian citizens.
On the competition front, the Big Four accounting firms, while not recent entrants into the market, are demonstrating an increasing presence in the area. An additional factor is the NAFTA replacement, the United States-Mexico-Canada Agreement (USMCA) and the concern that preceded the negotiations. There were fears that there would be an undermining of the immigration procedures between the three countries, but these have been mostly assuaged by the lack of substantial upheaval regarding immigration agreements in the new pact, which is scheduled to take effect in 2020. As it stands, practitioners are positive about the level of activity in the market and the increased certainty following the resolution of NAFTA discussions.
While Canada’s economy is facing some potentially difficult times in the near future, practitioners are generally upbeat about the status of the market and its levels of activity and investment. Increasing levels of competition are prompting lawyers to modernise and streamline their practices, ensuring that the domestic market remains as robust and dynamic as ever.