Timing is Everything: Gem of a Deal

In tech deals, timing is everything.

When an economy melts as spectacularly as it did in the fall of 2008, stories begin to emerge of incredible timing, of deals that closed shortly before things went horribly awry. The deal of the year in B.C.’s technology industry is one of those stories. Before talking about the exquisite timing of Gemcom Software, there are a couple of stories of good and bad timing in B.C.’s technology industry around similarly tumultuous turns in the market.

Back in 1987, Ballard Power Systems Inc. was keen to commercialize its new fuel cell technology and had managed to convince local venture capital firms to invest the first $3 million into the company. As a result of this first round of money, the company began its long trek of research, development, growth and eventually an IPO and hundreds of millions of dollars, putting Vancouver in the centre of the fuel cell universe. Geoff Ballard once told the story of how this financing almost didn’t happen. The drafting of the financing legal documents dragged on and on. Terms had been agreed upon in late August, and it was October when the investors finally wrote the cheque. Ballard deposited the cheque on Friday, October 16. The following Monday, the stock market would drop 20 per cent. It was Oct. 19, 1987, a date that will forever be remembered as Black Monday.

Onvia Inc., formerly known as Megadepot.com, was an online office-supply store competing with Staples Inc. and Grand & Toy for the small-office market. By March of 2000, it had raised $70 million in venture capital, moved from Vancouver to Seattle with its Canadian founders and filed for a spectacular dot-com IPO on the NASDAQ exchange. On the morning of Feb. 29, 2000, Glenn Ballman rang the bell at NASDAQ, had his smiling mug shown live on CNBC and was instantly a billionaire. The dot-coms started coming down sharply on April 15 and by the end of the year Onvia stock was down 86 per cent from its IPO price, or 96 per cent from its peak. Had the IPO been a few months earlier, Ballman may have enjoyed some of those billion dollars of the opening valuation.

Gemcom Software International Inc. started in the early ’90s in Vancouver as a sophisticated mining software company that helped mining companies find the most efficient way to reach their deposits. I first saw it as a public company in 1998 when it had a few million dollars in revenue and needed capital to grow. At the time, gold prices were low and mining was not particularly sexy in the market. The company persevered through the next seven years, and then became stuck in the range of $12 million to $15 million a year in revenue. Then the stars aligned: Under the direction of new CEO Rick Moignard, Gemcom acquired an Australian company that would sweeten Gemcom’s value proposition to its clients, and all of a sudden the commodities markets took off. Gemcom sales jumped from $18 million in 2005 to $53 million in 2007. The company took off, as did the stock.

Private equity firms JMI Equity and Carlyle Group announced the purchase of Gemcom at $190 million, in May this year. Commodity prices were high, with no end in sight. Or so it seemed. The deal officially closed on July 23. As I write this piece three months later, I am sure it’s one that JMI and Carlyle would like back, based on the price they paid. Don’t cry for them, though. They financed a good chunk of this acquisition with debt, which they were able to obtain in the spring. Good luck finding that debt now. Timing is everything in the big world of finance.

The deal of the year in technology is all that more spectacular, given where we are today. Congratulations, Rick and team! We will be hard-pressed to duplicate that in the coming year.

• Tags
  • Brent Holliday, 
  • Economy, 
  • Start Ups, 
  • Strategic Management, 
  • Technology