Open Text: Billion Dollar Company Number Two for Canada’s Silicon Valley

This past summer, the country’s largest tech company, Research in Motion, laid off 2,000 people, more than ten per cent of its total workforce.

For most towns, this would have had a major impact. But in the Kitchener-Waterloo “Tech Triangle”, Canada’s answer to Silicon Valley, it was mere blip.

The tech sector infrastructure is maturing here. Microsoft has been firmly ensconced for years, with former Chairman Bill Gates once noting that “Most years, we hire more students out of Waterloo than any university in the world, typically 50 or even more.” And search giant Google recently expanded its operations in the area, cutting the ribbon on a new 34,000 square foot facility in May.

Increasing worldwide perception of the area as a technology hotbed is starting to have real impact. A report issued recently called the Economic Analysis of Ontario by Central 1 Credit Union says that employment in the Kitchener-Waterloo-Barrie region will rise 3.9 per cent this year, 2.5 per cent in 2012 and 3.1 per cent in 2013, driving the regional unemployment rate down to 6.1 per cent in 2013.

_________________________________________________________________________________________________________

This story is brought to you by Zecotek Photonics (TSXV:ZMS). Zecotek is a developer of leading-edge technologies for medical, industrial and scientific markets including a glasses free next generation 3D display technology, high-performance crystals, photo detectors, medical lasers and optical imaging technologies.

___________________________________________________________________________________________________________

Kitchener-Waterloo’s technology sector is emerging from its awkward teenage phase with relative grace. There are some 600 technology startups within a sixty mile radius of the area and, as of August, something new; a potential rival to RIM’s status as top dog in the area.

To be fair, Open Text (TSX:OTC), an emerging leader in the Enterprise Content Management space, is still much smaller than Research in Motion. But in August, the company joined RIM in the billion dollar club, reporting fiscal 2011 revenues of $1.03 billion. That’s a far cry from the $19.9 billion RIM reported for 2010, but its also leaps and bounds ahead of where Open Text was in 2004, when it reported a $291 million top line. And the company is wildly profitable, earning $123 million in 2011.

Open Text grew out of a collaboration between the University of Waterloo and the New Oxford English Dictionary, the project was a partnership with the Oxford University Press to computerize the Oxford English Dictionary. This engineers on this project realized that it required developing search technologies that could be used to quickly index and retrieve information. The search technology they developed, which incorporated full-text indexing and string-search technology, was recognized as being useful for other electronic applications. In 1991, at about the same time the Internet was emerging, the results of this project were commercialized by a private spin-off called OpenText Corporation.

As the Internet expanded in usage, OpenText grew as organizations found they needed to index and search their existing and growing stores of electronic information. In 1994, OpenText began hosting its OpenText 4 search engine on the World Wide Web, competing directly with the AltaVista Web search engine. In 1995, OpenText provided the search technology used by Yahoo! as part of its Web index.

Enterprise Content Management is used to organize the mountains of data that large companies have and walk the regulatory and security issues associated with making this data available to employees and the general public whether through internal means or through the cloud.

So if Open Text is playing Intel to RIM’s Hewlett Packard, one questions begs an answer. Where are the other companies ready to become the northern versions of Adobe, Cisco, Netflix or even Apple? If we are to look at those companies that are already public there seem to be few candidates. Descartes Systems (TSX:DSG) has been around for thirty years, but has renewed vigor under leader Art Mesher. Sandvine (TSX:SVC) has wedged itself into a potentially valuable space with its deep packet inspection technology.

What is clear is that the environment for the public market in Canada has been so bad for so long that many of the more interesting companies have gone the way of the buyout instead, such as QNX, which is set to become RIM’s new operating system, or Waterloo startup PostRank, which was acquired by Google in June.

But things may now be changing.

In the latter half of this year Canadians were reintroduced to something they may have thought extinct; the technology IPO. Some of Canada’s fastest growing technology companies, such as Toronto’s NexJ Systems (TSX:NXJ), Burlington’s Ecosynthetix (TSX:ECO) and Vancouver’s Avigilon (TSX:AVO) collectively raised hundreds of millions of dollars in recent listings. Does this mean a more tempting environment for bustling private techs such as MioVision, RTI Cryogenics, and Desire2Learn to go public? 2012 will go a long way towards answering that question.

_______________________________________________________________________________________________________________

________________________________________________________________________________________________________________