Tech Companies Explode Out of the Gate in 2012

The Veracap Technology Index (“VTI”) composite share price has been on a tear since December 2011.  The VTI has more than quadrupled the S&P/TSX Composite Index, with a return 20.8% versus 5.0% for the period from December 1, 2011 to March 1, 2012 (and this excludes the stellar premiums awarded such take-over targets as Gennum and RuggedCom).  

To refresh our readers on the VTI, it includes all technology sector companies trading on the TSX and TSX-V with a market capitalization between $10 million and $500 million (Veracap’s area of focus).  As at March 1, 2012 this included 79 companies and of these 53 were up an average of 38%.

Technology sector valuation multiples have also increased sharply from 7.4 on December 1, 2011 to 9.8 on March 1. 2012.  The strongest subsector, in terms of valuation multiples, was the Software sector where companies such as Nightingale Informatix,  Redknee Solutions, and Posera-HDX contributed to an average last twelve month (LTM) EBITDA multiple of 13.2.   The Hardware & Equipment subsector brought up the rear with companies such as COM DEV International Ltd., Smart Technologies Inc. and LOREX Technology Inc. trading below five times LTM EBITDA.

Technology sector lifters and drags for the period from December 1 to March 1 include:

Lifters                                                 Subsector                                             %

Aastra Technologies Ltd.                    Communication Technology              Up 44.7%

Glentel Inc.                                          Communication Technology              Up 40.0%

Enghouse Systems Ltd.                     Software                                             Up 39.9%

Drags                                                  Subsector                                             %

Smart Technologies Inc.                     Hardware & Equipment                     Down 29.0%

Sandvine Corporation                         Communication Technology              Down 12.0%

DragonWave Inc.                                Communication Technology              Down 5.9%

Note: for companies with a December 1 share price greater than $1.00

For more M&A information on the Canadian technology scene please see our Spring issue of the Veracap Technology Quarterly.

Derek van der Plaat, CFA has worked in private market M&A for more than 20 years and is a Managing Director with Veracap Corporate Finance in Toronto.