April Newsletter

In this newsletter, Mike shares his thoughts regarding some of the recent Canadian technology exits, we look at a newly-released report on the outlook for M&A in Canada in the coming years, and we provide some details on a few of the transactions that took place in March.

Mike’s Thoughts On March’s Tech Exits

March turned out to be an excellent month for technology company exits, with 16 transactions being announced, representing a slight uptick over the 14 announced in February and double the eight deals announced in January.  Seven of the acquisitions were made by public companies, with four of the acquirers being Canadian, two from the US, and one from Sweden.  Four of the companies had VC backing while two were backed by PE firms, so we have further confirmation that it is absolutely possible to drive one’s technology company to a meaningful exit without institutional investors, either PE or VC.  Finally, it’s good to see enterprise software companies like Navtech and Conformance Check, which have been around for 25 years or more, complete a successful exit.

Looking at the acquisitions, I have to say that the most surprising one for me was Snapchat’s acquisition of Bitstrips for a reported $100 million.  It makes me think about a quote often attributed to Peter Thiel, who said: “We wanted flying cars, instead we got 140 characters.”  With a $3 million Series A round in December 2013 with Horizon Ventures and an $8 million Series B round with Kleiner Perkins and Horizon Ventures in October 2014, a $100 million exit is obviously superb.  I just find it challenging to understand the real technology value created by personal Bitmoji.

This certainly is reminiscent of Bumptop’s desktop environment app, which was acquired as part of Google’s acquisition of BumpTop in April 2010 for a guesstimated $30M to $40M.  Looking at either company, I’m hard-pressed to see how the acquisition price could be justified by either technology or business model.  I guess the obvious conclusion must be that the folks at Kleiner or Horizon are just infinitely more intelligent than I am, there’s too much money sloshing around looking for a place to park, or there’s no accounting for blind, dumb luck.  Your call.

Positive Sentiment Among M&A Dealmakers Is Good News For Canadian Companies Considering Selling

report published earlier this year by Citigroup and Mergermarket entitled “Brighter Horizons: A Bolder Future for Canadian M&A” provided some very useful insights into the outlook for the Canadian mergers and acquisitions market in 2016.  Using the results of surveys conducted among dealmakers and others with direct knowledge of Canada’s M&A landscape, the report paints a rosy picture regarding the overall Canadian M&A market and predictions for its performance over the coming years.

Some of the findings in the report are likely to play out over the longer term and will most likely have a positive impact on the M&A market for middle- and lower middle-market Canadian companies.  For instance, there was an overwhelming consensus that cross-border M&A will increase in 2016 and beyond, in particular, inbound acquisitions of Canadian companies by foreign acquirers.  A whopping 81% of respondents shared this sentiment, up from 60% in the 2015 survey.  Only 8% of respondents said there would be an increase in outbound M&A or acquisitions of foreign companies by Canadian acquirers.

As for the sectors that they believed are likely to be the most attractive for acquisitions, many of the respondents understandably chose energy and mining companies.  This is not surprising given the fact that lower commodity and energy prices have depressed the valuations of companies in those sectors, creating attractive buying opportunities for larger players.

However, many of the respondents felt that other sectors would also see a lot of M&A activity in the coming years.  For domestic M&A (i.e. acquisitions of Canadian companies by Canadian companies), 20% of the respondents said that consumer products companies would see the most activity while 14% of respondents felt that it would be the most active sector for inbound M&A.   The same sentiments applied to the technology sector, with 10% of respondents believing it will be the strongest sector for domestic M&A and 12% feeling the same way about inbound M&A while 12% also felt that tech will be the biggest driver of acquisitions of foreign targets by Canadian companies.

Another bright spot in the report was the feelings around M&A transactions under $250 million.  There was an overwhelming belief among the respondents that deals in this category would see the most activity.  51% said deals under $250 million would represent the bulk of domestic M&A, 42% said the same about inbound M&A and 54% for outbound M&A.  While large transactions tend to garner the most headlines, it is encouraging to see that the people who are involved in Canadian transactions feel that smaller transactions will play a leading role in the coming years.

Overall, the findings in the report provide some useful insights for the kinds of companies with which Q1 Capital tends to work.  According to the report, companies with valuations under $100 million in the technology and manufacturing sectors are well positioned for the kinds of transactions that insiders believe are going to be at the forefront of the Canadian M&A landscape in the coming years.

Hootsuite Makes Its Tenth Acquisition

Hootsuite, the Vancouver-based social media management company, announced it will be making its tenth acquisition since its founding in 2008.  The company plans to buy Sales Prodigy, a mobile app that assists corporate clients with their sales efforts by monitoring the social media activities of their sales leads.

Sales Prodigy is also based in Vancouver and was founded in 2014.  It does not appear to have raised any significant growth capital.  Terms of the transaction were not disclosed.

Hootsuite is one of the best known and most highly regarded Canadian tech companies these days.  It has raised almost $250 million in growth capital from some of the largest and most influential VC funds in the US and Canada.  It is nice to see that it has been deploying some of this capital towards acquisitions, especially considering at least half of the companies it has acquired have been Canadian.

To learn more, click here.

Infuitive Makes Two Acquisitions

Influitive, a Toronto-based company that has built a software platform for customer advocate marketing, made two acquisitions in March.  At the beginning of the month, the company announced that it was acquiring Ironark Software, a company that developed apps for home organizing and business task management.  Less than three weeks later, Influitive announced that it is acquiring Triggerfox, which has built a mobile platform for relationship management.  The financial details of both transactions were not disclosed.  Both of the acquired companies are also based in Toronto.

Influitive is one of Toronto’s hottest new tech companies.  It was founded by Mark Organ, who previously founded the marketing automation software company Eloqua, which was sold to Oracle for over $870 million in late 2012. The company has raised close to $50 million in growth capital from an array of Canadian and US venture capital funds.

After raising an $8.2 million Series B round at the end of February, Mr. Organ indicated that some of this capital would be deployed as acquisitions, and in March he made good on that promise.  It was encouraging to see that Influitive targeted other Toronto-based companies rather than seeking out software and talent further afield.

To read more about these transactions, click here and here.

gShift Labs Acquires InNetwork

gShift Labs, which has developed a web analytics platform for digital marketers, announced that it is acquiring Halifax-based InNetwork, an influencer marketing technology platform.  Terms of the deal were not discussed.

Founded in 2009, gShift is based in Barrie, Ontario, just north of Toronto, and has raised $2.1 million in venture capital from GrowthWorks Capital and Brightspark Ventures in addition to $1 million in seed capital from the MaRS Investment Accelerator Fund and the Ontario Centres of Excellence.  The company’s technology monitors and provides insights into a brand’s web presence and search engine optimization efforts.  It is used by over 10,000 brands in 22 countries.

InNetwork was founded in 2012 and has raised just under $700,000 from angel investors and Innovacorp.  Its technology allows users to create and oversee influencer marketing campaigns, in which companies engage people with strong social media presences to become ambassadors for their brands online.

To read more, click here.

Postmedia Acquires Ampifii

Ampifii, a Toronto-based company whose software platform enables users to manage their own sponsored social amplification campaigns, has been acquired by Postmedia Network Canada Corporation, the Canadian media company that includes the newspaper properties once owned by the former Canwest Global Communications Corporation and the Sun Media Corporation.

Details of the transaction were not disclosed.  Ampifii was about a year and a half old at the time it was acquired and had not raised any significant growth capital.  It was formed as part of a native ad campaign project for Postmedia, so this transaction seems to make perfect sense and may represent more of an “acqui-hire” in order to formally bring the team and the technology in-house.

To read more about the transaction, click here.