M&As 2003: Who will buy what

Mergers and acquisitions of foreign companies in the software and computer services industry declined last year, and experts aren’t predicting a huge turnaround in 2003.

According to statistics from Canadian Advanced Technology Alliance

(CATA), Canadian companies signed 19 deals worth $429.1 million in 2002, down from 23 and $951.9 million the previous year. CATA said the sale of Adtum to Cognos, which happened just before the holiday season on Dec. 19, represented more than 50 per cent of the total value of M&As in 2002 at $48 million. CATA’s executive director says a lack of funds triggered the slide.

“”Stock prices became low enough that companies were reluctant to use their shares as currency for acquisitions,”” says David Paterson. “”The other side of the coin is if you don’t use stock you use cash, and there were enough people in trouble last year with their cash positions that it interfered with that as well.””

It would seem Americans were in no better shape to capitalize, or simply weren’t interested. While foreign groups bought more Canadian software and services companies (23 to 19) and paid more to it ($745.4 million to $429.1 million), a lawyer in the Seattle office of Preston Gates and Ellis LLP says you would see a different picture if you looked at the technology industry as a whole.

“”It’s very interesting in the referral world. Among the law firms there seems to a be a lot more referral from Canadian firms to the U.S. than the other way around, and I think that tells you a little bit about what a number of us are seeing in terms of transactions,”” says Stephan Coonrod, head of the company’s business department. Coonrod has worked with Vancouver-bsaed Q/Media Software Corp. in its acquisition Print Northwest from Quebecor, and Scenicsoft Inc. in its sale to Creo Inc., among others.

“”Part of it is that a lot of Canadian companies look for sources of technology, channels for distribution, and therefore often are looking for acquisition opportunities in the U.S.””

Paterson says he expects the numbers to improve slightly in 2003 as last year’s financial unstable company becomes this year’s acquisition story.

“”There are still plenty of companies in trouble and people anticipate there will be quite a few bankruptcies this year as start-ups abandon hope of second round financing,”” he says. “”I think as the economy recovers as the year progresses I think we’ll see some firming in stock prices and that will be followed by an uptick in activity.””

Paterson doesn’t, however, expect one vertical to be more prone to this kind of activity than another. He adds he wouldn’t be surprised to CGI expand further into the United States. Coonrod is playing his cards a little closer to his vest. He says while he hopes for a better 2003 there are no signs to indicate the market will turn around.

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Jim Love, Chief Content Officer, IT World Canada

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