Canadian tech companies had a banner second quarter in 2011, closing more than 30 deals – a nearly 50% increase in deal volume over Q2 2010.
As we discussed in this column back in September, a significant portion of Canada's tech-sector deals were cross-border. The value of deals involving the sales of Canadian tech companies was double the value of deals in which a Canadian company was the acquirer.
Some tech heavyweights in Canada experienced significant setbacks in 2011. Research in Motion (RIM), the maker of BlackBerry and now-deposed king of the smartphone realm, watched its market share diminish further as its BlackBerry 7.0 smartphone failed to gain traction, and its BlackBerry Playbook tablet debuted to tepid reviews and lacklustre sales. Kobo, an e-reader company recently acquired by Japanese e-commerce firm Rakuten, likewise experienced a major setback this quarter after its Vox tablet – the company's first foray beyond e-readers – crashed and burned on the heels of devastating reviews. The struggles of RIM and Kobo, both members of Canada's elite 95/5 class of companies (those who do 95% of their business outside of Canada) – are a blow to the tech sector at large.
Nevertheless, opportunity across the sector remains robust, particularly in light of the influx of private equity entering the sector. Private equity financing remained robust in 2011 with growth equity investors paying "strategic" or M&A-like valuations for companies that demonstrated solid market leadership, growth and profitability. For Canadian companies in hot growth sectors with relatively strong leadership and growth dynamics, cross-border private equity deals could carve a new path to innovation and success.
In 2012, we expect to see the following sectors garner a great deal of investor attention. For a Canadian tech sector looking to recapture its strength and innovative potential, these sectors offer the best opportunity to bring growth capital back into the market.
•Web experience management, web content management, marketing automation
Web experience has become a critical success factor in a world where online sales account for an ever-increasing portion of revenue. Driven by the convergence of web content management, marketing automation, web analytics and social software, the multibillion-dollar market for web experience management will continue to be very active. As a result, companies providing web experience management technologies will be hot M&A and financing targets as technology leaders look to capitalize on this $8 billion market opportunity.
•Continued activity in cloud computing and data centre automation sectors
Data centre automation solutions are now a must-have for organizations looking to tackle the huge cost of managing data centres. We expect to see major technology players make significant investments in cloud-based data centre automation platforms, likely through acquisition of already proven technologies. Like the cloud, green initiatives will also affect finance and M&A in this sector. As organizations look to reduce energy-related costs, they'll demand greener data centre automation solutions, and major market players will need to acquire the technology to keep up with demand.
•Convergence of SoLoMo (social, local, mobile)
Convergence of an expanding social network footprint combined with smartphones with location-based service capabilities is offering new consumer monetization opportunities, such as location-based search marketing, mobile social networking, social/mobile commerce, etc.
According to Global Industry Analysts, Inc., the location-based advertising market is expected to grow to $12.8 billion by 2017, and ABI Research estimates that mobile commerce is expected to reach $119 billion by 2015. New innovative services that gain consumer mind and wallet-share will attract capital from investors.
Despite the challenges in the macro-economy, there are many technology sectors positioned to thrive in the Canadian market over the next year. Although deal flow is likely to slow a bit in 2012, excellent M&A and capital-raising opportunities exist for top companies in hot sectors. •
