I began writing this column a year ago this September. That was right around the time that Lehman Brothers Holdings Inc. ceased to exist and the banks put up the hurricane shutters, choking off credit for every business and every private equity firm on the planet. You remember that month, don’t you? Well, on this inauspicious anniversary, I wanted to look back at the impact of a tumultuous year in finance on B.C.’s technology industry – and look ahead to better times.
Despite some decade-low stock prices, public technology companies have fared better than you might think. T-Net tracks a top-20 index of public technology companies in B.C., and their collective market capitalization was $7.4 billion on Sept. 8, 2008, before Black Tuesday hit on Sept. 15. The index reached a low of $3.7 billion – a 50 per cent drop – in March 2009, yet now (at press time) it’s back at $5.2 billion – a 41 per cent gain.
The individual success stories are equally impressive. Sierra Wireless Inc. gained 158 per cent since March, after completing its biggest acquisition. Vecima Networks Inc. rebounded from a low of $3.95 to trade around $6. MacDonald, Dettwiler and Associates Ltd. is up 69 per cent since March and trades five per cent higher than it did just before the big melt. Since March Angiotech Pharmaceuticals Inc. is up 400 per cent and PMC-Sierra Inc. is up 93 per cent. All in all, public technology companies – typically with little or no debt – have emerged from last year’s debacle in better shape.
That said, M&A activity has been very slow through this past year. Notable acquisitions are few: QuestAir Technologies Inc., Super Rewards, BigPark Inc. and NowPublic Technologies Inc. Since the fall of 2008, buyers have been waiting for bargains and sellers have been unwilling to sell because of poor valuations. In good times, technology M&As can get wacky, with strategic buyers gobbling up companies with little or no revenue for many millions of dollars. But we saw no such wackiness in early 2009 as gun-shy technology buyers focused only on targets that could add to earnings. Look for much more M&A activity this fall and into 2010 as pent-up demand for market consolidation and technology acquisition fires up the M&A engine.
Private companies have done the same as others in the downturn: pruned costs, focused on core customers and avoided raising money. Certain sectors are thriving right now in B.C. Clean technology (especially smart-grid, electric-vehicle and green-building/resource-management companies) is doing especially well, given infrastructure spending from government. New media is also hot (Super Rewards and NowPublic being two prime recent examples), with promising new startups showing up all the time. But the crunch for early-stage private companies will be finding capital. Very few fundings have been announced so far, indicating little venture capital is available. This is troubling for the sector as a whole.
The technology sector has seen a big pullback already this decade, but 2008-09 was dramatically different. This downturn initially affected only financial companies, but quickly spilled into a global mess that pulled down spending in all sectors. Back in 2001, the technology sector melted all by itself, dragging down only the techies and the venture capitalists exposed to them. The rest of the world chugged ahead behind cheap debt, China and higher-priced commodities. Private equity firms loaded up on capital and spent like drunken sailors. Finance companies, home builders and manufacturers soared. Technology recovered fairly quickly back then because customers, consumers and businesses were still spending, but that won’t be the case this time around. Yes, things have undoubtedly improved for B.C.’s tech companies since the misery of last winter, but the road to full recovery remains long and difficult. n Brent Holliday heads the technology practice for Capital West Partners, a Vancouver-based investment bank.