Canadian Companies in the US

By Alan Gahtan - October 15, 2001

Many Canadian companies, particularly technology ventures, are focused on the US both as a market for their products and as a source for further financing.  In fact, the US is so important that some Canadian companies bend over backwards to make themselves look like US companies.

Take for instance, Entrust Technologies, a security and encryption company that was a spinoff of Nortel (the former equipment branch of Bell Canada ).  Entrust is recognized as a leading innovator in its field, is a recipient of numerous industry awards, has over 90 patents and pending patent applications and has captured an industry-leading 39 percent of the PKI software market.

Entrust was born in Canada, developed its technology in Canada and the bulk of its employees are located in Canada   In fact, last year, the company built a spiffy $18 million five story building in Ottawa to house 500 of its employees.  However, Entrust insists it is based in Plano , Texas , where it has a smaller building that houses about 30 of its employees and is designated as its “worldwide headquarters”.  Press releases are not issued from Ottawa , but rather from Dallas .

Consider PMC Sierra, a leading manufacturer of high-speed, high-density broadband communications semiconductor architectural solutions.  PMC Sierra, which also trades on Nasdaq and was recently added to the S&P 500 Index, is officially based out of Santa Clara , California where it maintains a few dozen employees.  However, PMC Sierra’s “operational headquarters” is in Burnaby , British Columbia , a facility which houses more than 700 employees including its CEO and CFO.  The company has even been identified as the largest tech company in British Columbia .

Another example is Certicom,  an e-commerce security company.  Founded in 1985 by cryptographers from the University of Waterloo’s computer science department, Certicom switched its “worldwide sales and marketing headquarters” from Mississauga, Ontario to Hayward, California a month before it listed on Nasdaq and secured over US$50 million in its IPO from investors.  The Mississauga location is identified as Certicom’s cryptographic research and product development center.

Entrust, PMC Sierra and Certicom are not alone in moving their “headquarters” south of the border.  A number of other Canadian high tech firms listed on Nasdaq have also set up nominal headquarters in the US to primarily house their marketing and sales staff, plus a few executives.   The objective is simple – catering to the bias among Americans investors to favour American companies.   

It is thought by some that this strategy can yield share prices that are 20-40 percent higher than going public in the US with a Canadian headquarters.  Companies such as Entrust, PMC Sierra and Certicom can then secure American sized market caps while continuing to benefit from Canada ’s lower wage rates and generous Government research and development tax subsidies.

While the IPO frenzy appears to have subsided, at least temporarily, a number of other Canadian companies are also making plans to “move” to the US in anticipation of an improvement in the financing climate.  Is this a bad thing for Canada ?  Probably not since it keeps jobs and management control here.

However, not everyone is buying into this strategy.  Some Canadian companies simply cross list their shares on both a Canadian exchange and one of Nasdaq or the NYSE.  The hope, in this case, is that their domestic profile may result in better analyst coverage and better liquidity in secondary trading.

An example of a high profile Canadian company which has retained its Canadian identity is JDS Uniphase.  The company maintains dual corporate headquarters - one in Ottawa and another in San Jose , California .  Its stocks trade on both the TSE and Nasdaq.  Another example is Celestica, a world leader in electronics manufacturing services with over 32,000 employees and 2000 revenues of USD$9.8 billion.  Celestica, whose stock trades on both the TSE and NYSE, boldly identifies its headquarters as being located in Toronto .

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