The trend that has seen Canadian tech names such as TIO Networks acquired by PayPal will continue, mainly due to low multiples and a strong U.S dollar, says Canaccord Genuity analyst Robert Young.
In a research report to clients Friday, Young presented an argument as to why 2017 will see more in the way of mergers and acquisitions.
“We continue to believe that as US markets are reaching new highs while the Canadian dollar has declined in value over the past two years there is likely to be continued M&A as US companies look to Canada for opportunities,” says the analyst.
Young says that while a couple well known names are already on their way out, investors should pay attention to a short list of some others that may soon follow them.
“M&A has been a theme that has been materializing this year,” he explains. “We highlighted that Halogen, Solium, RDM Corp and DH are names to pay attention to; two of them are to be acquired and focus list company TIO Networks was sold to PayPal while speculation persists that DH could be acquired. We continue to believe that low multiples could drive more acquisitions of Canadian-listed technology companies as valuations lag international peers amid a relatively weak CAD. We reiterate that despite increased activity we do not expect stratospheric valuations if M&A continues in so-called “second-tier” names, but we do expect that M&A is likely to continue in 2017.
Young currently has a “Hold” rating and $12.50 one-year price target on Halogen Software and a “Buy” rating and $10.00 target on Solium Capital.