There is one thing, and perhaps one thing only, that makes Canadian tech investors today snap to attention; the potential of a buyout at a healthy premium. These are curious times in the Canadian equities markets, especially when it comes to tech.
Listed companies, it seems, can tell the market most anything and are still met with apathy. Better numbers? Yawn. Executing against your business plan? Eye roll. Influential new partner? ….I’m getting sleepy.
But there is one thing, and perhaps one thing only, that makes Canadian tech investors today snap to attention; the potential of a buyout at a healthy premium.
Those with even a casual interest in the Canadian tech sector will know this is not a pipe dream; Canadian techs such as Miranda, Mosaid and Gennum -to name but a few of the many recent examples- were sold in rather quick fashion at rather large premiums to the recent trading history.
These bumps have been nothing to scoff at, and they have made certain investors a lot of cash in a very short time frame. Microsemi paid $3.86 a share for Zarlink, a 67% premium over the closing price of the shares the day before the offer. Siemens Canada’s offer for Ruggedcom was a premium of 142% to the closing price of that company’s shares on December 16, 2011, which was the last trading day before shunned suitor Belden expressed interest. Semtech paid $13.55 a share for Gennum. That stock had closed at $6.15 the day before. Belden finally landed a Canadian tech, Miranda, at $17 a share; a 64 % premium to the stock’s closing price of $10.39 on June 4th.
When Guestlogix (TSX:GXI), after slipping for the better part of two years after expanding its offerings to airlines proved to be a more difficult proposition than expected, announced a management change -albeit a minor one as co-founder Brett Proud took over from co-founder Tom Douramakos- the market responded with a smattering of applause; Guestlogix closed the day up 11.86% to $.66 cents.
But here’s the thing; shares of the company have continued to rise. At press time, the company’s shares had posted a 6.3% gain to trade at $.85. The reason, in all likelihood, is all small section of the same press release that contained language that was more than familiar. The company announced it had ” initiated a strategic review to look at alternatives for the company’s future.” That’s it.
So this is where we are today. No one seems to doubt that any of the aforementioned buyouts, or the many more we haven’t mentioned, are worth the price. Indeed, the more puzzling fact is that Guestlogix’s revenue grew from just $5.43 million in fiscal 2007 to $22.8-million in 2011 while company’s stock went the other way, falling from nearly $2 in early 2010 to recent lows under $.40 cents.
What the market wants now is a catalyst. On this topic, earlier this year, we talked about whether Canadian tech stocks, which are trading at a significant discount to their US-based peers, deserved a “takeover premium”. A scarier notion is conveyed by a similar term used by analyst Tom Liston in a recent report on CGI Group, who said the Montreal IT giant might benefit from the fact that M&A activity in the software and services sector will continue driving up the “scarcity premium” afforded to stocks not acquired.