With Canada’s tech IPO window still curiously closed the M&A activity that has defined the sector for some time may accelerate with a recovering U.S. dollar, says Canaccord Genuity analyst Robert Young.
In a research report to clients today, Young addressed the issue of Canadian techs being bought out, typically by American firms. The analyst says expect to see more of it, and identified three targets in the Canaccord Genuity coverage universe he thinks have a high probability of being acquired and several others that could also be scooped up but are somewhat less likely candidates.
“Throughout the year we have seen a flurry of Canadian companies acquired by international peers that were acting opportunistically in the face of a weaker CAD,” the analyst says. “In our view, M&A remains a potential catalyst for numerous Canadian technology names as the USD rebounds from lows earlier this year, and we think more “second tier” names will likely be acquired at fair, not stratospheric, valuations. Further, we would highlight that companies with solid underlying fundamentals have undergone some trading volatility of late, which we consider buying opportunities rather than a new trend.”
Young says BSM Technologies (BSM Technologies Stock Quote, Chart, News: TSX:GPS) has a high likelihood of being acquired because of its critical mass in the rail market, the fact that the industry is consolidating, and an activist shareholder in Crescendo Partners. He thinks Trimble, Garmin, or other telematics providers are candidates to acquire BSM.
The analyst thinks Kinaxis could be bought because of strong subscription software for augmenting Supply Chain Management. He SAP, Oracle, Microsoft, JDA, Honeywell, and Infor are all candidates to acquire the Ottawa-based company.
And Young thinks Vancouver-based Nanotech Security is likely to be acquired because of its Unique patented product and license model. He says Hueck Folien, Giesecke & Devrient, Gemalto are candidates to acquire Nanotech.
Young puts eight more companies in a tier-two group he describes as a “medium” possibility of being acquired. These are Avigilon (Avigilon Stock Quote, Chart, News: TSX:AVO), Absolute Software (Absolute Software Stock Quote, Chart, News: TSX:ABT), Stars Group (Stars Group Stock Quote, Chart, News: TSX:TSGI), exactEarth (exactEarth Stock Quote, Chart, News: TSX:XCT), Quarterhill (Quarterhill Stock Quote, Chart, News: TSX:WIN), Redknee (Redknee Stock Quote, Chart, News: TSX:RKN), Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSX:SEV), and Urthecast (Urthecast Stock Quote, Chart, News: TSX:UR).