Tax breaks are one thing, but cash in hand is something altogether different. This is where Quebec differs from most state and provincial governments. Provincial R&D tax breaks, for example, put 40 cents back in investors' hands for each dollar spent on research and development. A more unique example is the Societe generale de financement du Quebec (SGF), an industrial and financial holding company.
SGF provides businesses with development capital based on profitability and performance -- investing in partnerships and assuming its share of the risks. With a focus on Quebec's long-term economic development, SGF chooses projects that promise high profitability in 10 industry sectors.
Senior Editor Tracy Heath sat down with SGF's president and CEO Claude Blanchet to find out what role SGF plays in Quebec's economic development and how expanding corporations can benefit from its partnerships.
Site Selection: How would you describe your operations?
Claude Blanchet: SGF has a board of directors, so that is the organization that makes the decisions. We invest in equity, especially equity in companies. We take a share of a company up to 49 percent -- we always are a minority shareholder, because we want to make certain that political decisions do not come into the process.
Claude Blanchet
We want them to make pure business decisions; therefore, if we make sure that the private enterprise is the major shareholder, then we won't have those kinds of problems. We will focus on the business development.
Back three or four years ago, we developed a business plan where we found some of the most important sectors, and in each of those sectors we sort of set the ideal plan.
Let's take black carbon as an example. We found that Quebec was a good place for producing black carbon, because we developed the product and the market is close, and so we sought out the best producer in the world. We knocked at their doors, tried to find a group to invest and base its operations here. We found one, which was Kvaerner, a Norwegian company. We made a deal, and the project was around C$60 million.
They own 51 percent and we own 49 percent of the company. We've been developing that black carbon operation for the last two years now. That is what we're doing in all of the sectors.
SS: How successful has SGF been?
CB: Last year we had 49 projects. Some are larger, some are smaller. We were able to invest with our partners up to $2.45 billion. The year before, there were 52 projects with $1.8 billion invested.
SS: Do you prefer to work with local companies or to bring new companies to the province?
CB: There is no preference. It always depends on our partners and the project that they have. Basically, Quebec is not very well known, because it's not a country, it's a province. Therefore, we are not one of the large GDPs of the world, so we have to go around the world and let people know our strengths.
SS: Do you invest in startup companies?
CB: We do not usually invest in startups. Usually we look at projects that want to come to a new market and need a substantial amount of money to start the project. We look at projects of $10 million or more.
SS: You typically receive about 15 percent return on your investments. To what do you attribute this success?
CB: Well, it's a mixture of things. We are good partners, and we make good deals. We have 141 companies, and our return is this portfolio.
SS: Besides providing capital, what else do you do for these organizations?
CB: We, of course, work with lots of companies coming here from other countries. So if they want to operate in a new area of the world, it's typical to have a partner, and we feel that we are the local partner. We know the system, we know the best place to install their operation. We know the best engineer to build. We know how to get fast tract approval from our government. We know all the financial institutions to help make the financial structure. We select the personnel, because we know the best person in town. And we're part of the decision making because we put our money into their projects. We want to make the best investments; therefore, we work on the same side.
SS: Do you pull out of the investment?
CB: We have a clause that says we could be bought back by our partners after five to seven years.
