Last year’s M&A environment in Canadian tech seemed to be in hyperdrive. Canadian investors lost some of our best and brightest companies including Zarlink, March Networks, Bridgewater and MOSAID. And that was just Ottawa.
Earlier this year, Synchronica (TSXV:SYN) a company headquartered in the UK but listed on the TSX Venture Exchange (as well as London’s AIM Exchange) received an offer from Swiss-based Myriad AG. The proposed deal would have had Synchronica shareholders receive 4.67 newly issued Myriad shares for every 100 shares of Synchronica they held. Last week, Synchronica announced its board could not come to an agreement with Myriad AG and advised shareholders to take no action.
Today, a surprise, as Synchronica announced it has signed a Letter of Intent with Toronto’s Intertainment Media (TSXV:INT) to integrate Synchronica’s flagship messaging platform, Mobile Gateway, with Intertainment Media’s Ortsbo experiential language technology. As part of the transaction, Intertainment Media will also, subject to Synchronica shareholder approval, invest up to CDN $ 10 million in Synchronica, at a minimum price of GBP 0.16 per unit. The deal seems to signal that both companies will continue to innovate on Canadian soil for some time to come.
As the news broke, Cantech Letter’s Nick Waddell talked to Synchronica CEO Angus Dent and Intertainment Media CEO David Lucatch about the deal.
Angus, the board of Synchronica recently told shareholders it could not reach a deal with Myriad Group AG, who made an all share offer for Synchronica. Does this deal with Intertainment signal you are moving on?
DENT: I would characterize it as us are choosing a partner in Intertainment, rather than having a partner thrust upon us in the shape of Myriad.
David, how did this come about?
LUCATCH: Intertainment and Synchronica have been discussing opportunities for some time, but nothing of major significance. But now I feel that both parties feel the relationship with Intertainment is a stronger option than the one that has been presented to Synchronica. Is that fair Angus?
DENT: Yes, absolutely. It’s a stronger relationship and it’s a better relationship because Intertainment brings not just an investment, but intellectual property from which Synchronica can benefit, and it’s reciprocal as well. That’s a much stronger combination.
Angus, what do you see in Intertainment Media that made you want to do this?
DENT: In the short term we were particularly interested in the Ortsbo translation software and embedding that with Mobile Gateway, our flagship product. We’re intrigued by the ability to translate messages on the fly, from one language to another. That’s something that we will be able to demonstrate at the upcoming Mobile World Congress in late February. By the end of this month we will have a product ready at least for demonstration. For the longer term, the language translation software will continue to be an important integrated feature to our software and development curve. Intertainment has a lot of experience in advertising and marketing, generally. We need to push the Synchronica product forward and bring it to the forefront of the mobile market, particularly as we add new features such as geo-location chat. We believe Intertainment Media can really help us with these things.
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Angus, for our readers who don’t know, could you explain to our readers what Mobile Gateway is and highlight some of Synchronica’s intellectual property?
DENT: Sure, Synchronica Mobile Gateway, as the name implies, is a gateway that allows carriers and device manufacturers to offer push email services, instant messaging services and, increasingly, social networking messages in both directions to devices. We came from the email space, added instant messaging as that became more popular, and now we’re focusing on the social networking side of things. We’re in the process of bringing out a unified inbox, so you can get all your messages, whatever the bearer of those messages may be, in one place, on your handset. Adding the geo-location services, so your device knows where you are. So if you land at an airport in Toronto, as I have just done, you want an Italian restaurant, your mobile will tell you that. That’s one application of geo-location. With Intertainment, it’s not just about finding a restaurant, it’s about being able to talk to that restaurant in their native language, if you are in Italy, for instance. Of course geo-location chat is the next wave that is hitting us now. Interestingly, I saw the other night that Facebook believes the next one hundred million of their users will be on mobile. That enablement of chat on mobile is something that Synchronica does, across the whole range of handsets, from the basic to the feature phones and smart phones.
David, what do you like about Synchronica?
LUCATCH: What we like is very simple, Nick. Synchronica has a stellar reputation for the development of carrier-grade technologies. That is something that Ortsbo could do down the road, but might take years to develop because of the lengthy approval process. Synchronica has over 100 mobile operators and device manufacturers within their partnership scheme. That gives us instant access to a global network, which means it gives us instant access to users within that global network. Ortsbo is developing a series of mobile applications that need homes, and we have other ideas for applications across operating platforms. So Synchronica provides those gateways. Synchronica also has the expertise to allow us to accelerate all our development programs. For us, it’s a very simple transaction. We have a best of breed partner in Synchronica that provides us carrier grade technologies, access to over 100 mobile operators and device manufacturers and the ability to scale our own technologies based on their development network and expertise they have in house.
One of the really interesting things about Synchronica’s technology is that it can enable a very large percentage of people on the planet who do not have a smartphone to experience smartphone like features…
DENT: That’s absolutely right, and that’s where our business started from. We were providing software that could take the most basic phone and put a push email service on it and an instant messaging service. These days we can continue to do that, as well as social networking and geo-location chat to come. That’s our roots and if you look at the customers we’ve got have a good spread of customers in North America, in fact it’s a veritable who’s who of the North American carriers. We also have the big Latin American carriers as customers, we have the two big Pan-African carriers as our customers, we have the four big carriers in Russia, and we have other carriers as you go into Asia. Yes, smartphones are penetrating those markets, and maybe they are into double digits as far as percentages now, but that still leaves a good 80% of the mobile users in those countries with basic or feature phones and that is a real sweet spot for us.
LUCATCH: I think Synchronica has features that, combined with Ortsbo and some of the other things we are working on will, ultimately, enhance revenue value for the carrier. I think we will ultimately create value for them because they will have these great products to offer to their end users. The next-generation of software that is going to be developed jointly under our new arrangement will be driven by secondary and tertiary opportunities for revenue, so the carrier can offer more features, but not have to charge for those features as they are supported by advertising and other revenue programs.
Angus, Synchronica is platform agnostic, correct?
DENT: Completely, we work literally from the most basic handsets and operating systems on the planet, right up to the latest Apple and RIM smartphones.
LUCATCH: It’s a very interesting situation, Nick. On the Intertainment side we’re doing the investment, on the Ortsbo side we’re engaging the operating agreements. It’s really important as we believe that our potential investment in Synchronica will provide Intertainment exceptional long term returns. And that value will be driven by the operating relationship with Ortsbo. We’re already developing products and programs and unified mobile suites. And Synchronica already has the carrier and the business relationships in place, so effectively, we are fast tracking everything we are doing at Ortsbo to accelerate way beyond what any other social-media group is doing.