Mergers and Acquisitions and (Other) Footnotes
By Darren Anderson
2010 trends and developments
Analysis of this year’s Branham300 data and the major events that took place throughout Canada’s ICT industry in 2010 offers a snapshot of some of the major industry trends that developed over the past year and what to look out for in Canada’s ICT industry in 2011.
M&A deals aplenty
Canada’s ICT industry experienced yet another year filled with major merger and acquisition activity. A number of industry leaders acquired companies ranging from established players to emerging start-ups in an effort to complement existing technologies and enter new markets, while several small- to medium-sized Canadian technology companies were acquired by foreign players. Notable absences on this year’s Branham300 include BreconRidge, Brainhunter, Coretec, Protus, Clarity Systems and Fusepoint Managed Systems, which were all acquired in 2010. Throughout the downturn, many large Canadian and foreign ICT multinationals opted to hoard cash, with uncertainty at an all-time high. With many firms still undervalued or under resourced, it is likely that M&A activity in Canada’s ICT industry will increase in 2011, or at least remain on par with 2010 levels.
All remains quiet on the IPO front
IPO markets remained quiet in 2010, as only two prominent Canadian technology companies went public, with both Ottawa-based Mitel and Calgary-based SMART Technologies completing their public offerings in early- to mid-2010. As a result of the events of the past two years, many of Canada’s leading technology companies put their IPO plans on hold. With the markets continuing to improve, expect to see increased IPO activity in 2011 as leading Canadian technology companies once again look at going public as a viable route to obtaining additional resources to finance their activities or fuel their expansion.
The Canadian dollar is loony
The Canadian dollar closed above the U.S. dollar at the end of 2010, for only the second time in 30 years. With more than 40 per cent of this year’s Top 250 generating in excess of 50 per cent of their sales outside Canadian borders, and more than 30 per cent of the listed companies producing more than 50 per cent of their revenues in the U.S., the significant increase in the value of the Canadian dollar relative to the U.S. dollar played an important role in Canada’s ICT industry in 2010. Should this trend persist in 2011 and beyond, ICT companies doing business outside Canada will face increased competition due to the higher product costs, and Canadian companies trying to position themselves as effective near-shore options compared to traditional outsourcing destinations will have to rely on other core strengths, such as innovation and leadership, rather than overall labour cost savings.
R&D still below historical levels
Over the past year, Canada’s leading technology companies increased the overall percentage of revenues they invest in research and development (R&D) activities from 14.78 per cent in 2009 to 15.44 per cent in 2010. Although this level of investment still trails 2008 levels (15.88 per cent), it is a strong indicator that Canadian ICT companies recognize they must invest in their core technologies and the products and services they bring to market in order to remain competitive in an increasingly global playing field.
Closing thoughts
Although Canada’s ICT industry endured another challenging year in 2010, it has a lot to look forward to in 2011 and beyond. It is led by a world-class technology juggernaut that continues to churn out double-digit growth on an annual basis. Each of the industry’s sectors is headlined by a globally recognized leader, something that is absolutely necessary for Canada to be recognized as a technology leader on a global stage. And the modest cumulative growth the industry experienced in 2010 is a building block for Canada’s ICT industry as it recovers from the challenging economic climate of the past two-plus years. As economic indicators in Canada continue to improve and markets further stabilize, Branham expects Canada’s ICT industry to experience high single-digit cumulative growth in 2011.
Mergers and Acquisitions PDF (1MB)
