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Byron Capital says these Canadian Techs Could be Takeover Candidates

Could Mark Barrenechea, who became CEO of Waterloo's Open Text on January 2nd, be fielding offers for the company in 2012?

Could Mark Barrenechea, who became CEO of Waterloo's Open Text on January 2nd, be fielding offers for the company in 2012?
In 2011, the story of the year in Canadian tech was buyouts.

Many of our most interesting Canadian concerns were sold off last year, from Zarlink (TSX:ZL) to Bridgewater (TSX:BWC) to March Networks (TSX:MN) to 2011 Canadian Tech Stock of the Year MOSAID (TSX:MSD) which, on December 19th, accepted a $590-million buyout from Chicago-based private equity firm Sterling Partners.

Yesterday, Byron Capital analysts Tom Astle and Byron Berry took a look at the year ahead for the technology sector. Their bet is that the M&A theme that ramped up in 2011 will continue in 2012 because global tech companies are flush with cash and short on growth.

In fact, say the pair, six of the top ten balance sheets belong to tech companies, including Apple, Microsoft, Cisco, and Google. What’s more, the technology sector is the one with the most cash; about $260 billion, or 26% of the total cash in corporate America.

Astle and Berry estimate that more than $2 billion of this cash was used to take out the companies mentioned above, but also private Canadian techs like Algorithmics, Q1 Labs, Platform Computing, Rypple and DayForce.

So which public companies are attractive takeover candidates in 2012?

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This story is brought to you Zecotek Photonics (TSXV:ZMS). As of November 16, 2011, Zecotek owned title to or controlled more than 55 patents and applications. Click here to learn more.

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Byron says Waterloo network policy controller innovator Sandvine (TSX:SVC) may be in play because of its leadership in its space, its price, and the fact that a larger company my be able to reduce costs through synergies. After delivering consistent topline growth for years, Sandvine has begun to level off. Last Thursday, the company announced its fiscal 2011 results. Revenue came in at (US) $89.3 million compared to $92.08 in fiscal 2010, and the Waterloo-based company lost $5.8-million, a number nearly equal to the amount it made in 2010.

Staying in Waterloo, Astle and Berry say Open Text (TSX:OTC), which recently became the second billion dollar company, by revenue, in the Kitchener-Waterloo tech-triangle, may finally fall in line with many of its peers, which have already been consolidated.

And, of course the rumours swirl about Research in Motion (TSX:RIM), with Samsung being the latest supposed dance partner. Astle and Berry say the long wait for the new BlackBerry operating system will provide extra pressure for a takeover because there are few other near term catalysts.

Will 2011 Canadian Tech Exec of the Year Jim Skippen be fielding offers for his company the way crosstown rival MOSAID did last year? Byron thinks patents will remain hot in 2012, and Wi-LAN (TSX:WIN) could be a target because it has an attractive stable of patents and trades at a discount to its peers.

Patents also come into play for mobile search and advertising company Poynt (TSXV:PYN), which Astle and Berry think could also be highly valued for its user base, which continues to grow. On December 1st, Poynt announced what CEO Andrew Osis thinks is the Calgary company’s seminal deal; the Poynt app will come preloaded on all Samsung Galaxy devices.

And, of course, there’s RuggedCom (TSX:RCM) which leapt 62%, from $13.61 to $22.69 on December 19th, when St. Louis-based Belden (NYSE:BDC), a manufacturer of signal transmission and networking products used in demanding environments, made a $22 all cash offer for the Vaughn, Ontario base company.

Astle, at the time, advised investors to hang on to their shares of RuggedCom, speculating the move could be just the first in a number of bids. Soon after, RuggedCom’s board, who own or control 16.1% of the company, advised shareholders to vote against the Belden offer, calling it “opportunistic” is a circular disseminated after the press release. RuggedCom has since climbed north of the $25 mark, and Astle has raised his target to $30, as he believes a full value bid is now possible for the company, which he considers a “rare property.”

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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