The level of merger and acquisition activity in the Canadian high-tech sector has fallen by 55 per cent, the first decline in close to 10 years, the CATAAlliance said Wednesday.
In a report chronicling Canadian IT mergers and acquisitions (M&As) for the first half of 2001, the industry association said the combined value of the deals saw a precipitous 80 per cent drop from $61 billion to $1.2 billion.
CATAAlliance said Canadian companies acquired eight foreign ones, down 69 per cent from last year’s 26, and 11 Canadian businesses, a drop of 42 per cent from 19 in 2000. Foreign acquisitions of Canadian software companies were down 46 per cent from 13 to seven.
John Reid, president of CATAAlliance, said many companies simply don’t have the cash to produce the mergers and acquisitions, though he admitted the recent streak of buyouts by Telus and Corel’s takeover of Micrografx on Monday showed some signs of life in the market.
“It hasn’t dried up,” he said. “If you’ve got some cash and some market presence, there are some strategic resources that you can acquire, but it’s not nearly the extent of activity that we saw in the last few years. It’s not that this is zero, but the stronger enterprises are being very selective about what they can pick up.”
Reid said the number of deals has been on the upswing since 1992. In 1996, the group reported 32 M&As and 105 last year. At the same time, deals were increasing in value from $900 million to $11.4 billion. Now CATA said the value of the Canadian acquired companies has fallen by 80 per cent, while foreign buyouts were down 89 per cent.
The group’s report matches well with data released last week by the consulting firm PricewaterhouseCoopers, which said technology and media initial public offerings dropped from 14 in the first half of 2000 to four this year — a change of 71 per cent. Reid said that if an IPO isn’t on the horizon, companies usually keep the M&A option as a backup plan. In today’s economic climate, that might not be possible, though he said there was some upside to the situation.
“The key word is ‘efficiency,'” he said. “It’s not necessarily bad to look at all your resources, because that’s the one thing that you can control,” he said. “Prices are going to come back – the demand patterns are there – but you can’t do much about that in the short term.”
CATA’s numbers were skewed somewhat by the one exception to the rule: the $670 million buyout of IMRglobal Corp. in February. Despite the market downturn, Reid said some big M&As could still be on the horizon.
“You would expect to see some major deals, because the major players with some of the bench strengths are going to find assets that fit their core business that are extremely attractive but still relatively expensive,” he said.
The Canadian high-tech M&A activity is consistent with what’s happening in the U.S., Reid added.
“The industry knows no boundaries,” he said. “The factors that are affecting Canadian high-tech are very much the same in the global dynamic.”