West Coast corporate consolidations look as assured in 2021 as a future rivalry between the Vancouver Canucks and Seattle Kraken.
The past year of COVID-19 has resulted in a massive accumulation of private equity (PE) funding worth trillions as well as significant sums of cash on the balance sheet for corporate America, according to David Raffa, president of Valeo Corporate Finance Ltd.
“If you’re a PE fund, you have to move money to make money. You can’t just sit it. It’s your job to place funds and that includes acquiring companies.”
He added that B.C.-based technology companies look especially primed for consolidations and acquisitions in the coming months.
Raffa noted Vancouver’s proximity to tech hubs like Silicon Valley and Seattle, its access to top-tier universities and the large talent pool paid in Canadian dollars at lower comparable salaries than their American counterparts has been drawing attention from U.S. firms.
“It’s a good time to buy when valuations have been reduced and your cash [is] flush. So those things – plus the opening up of the credit markets and continued low interest rates – those are the macro levels that are going to drive M&A,” he said.
So what companies should we keep an eye on this year for potential activity?
Traction on Demand (Traction Sales and Marketing Inc.)
The Burnaby-based software firm helps companies implement marketing strategies using Salesforce.com Inc.’s (NYSE:CRM) customer relationship management (CRM) services.
“Salesforce has been on an acquisition spree, and they’ve already bought two companies that have connections to British Columbia,” Raffa said.
Last year the Silicon Valley giant acquired Vancouver’s Mobify Research and Development Inc.
That was soon followed by a cash-and-stock deal worth US$27.7 billion for messaging service Slack Technologies Inc. (NYSE:WORK), which was founded by Vancouverite Stewart Butterfield and maintains sizable offices in the city.
“That was one of the biggest deals last year, and a deal that pretty much says, ‘We’re coming after you Microsoft. We’re going to be something more than just a CRM company,” Raffa said.
“It is a company where you could integrate somebody like Traction on Demand seamlessly and there would be a lot of value in them bringing that in house. The company’s done really well on its own, and they may … want to keep going on their own, but I wouldn’t be surprised … especially the ways that Salesforce is moving, that they take a run at Traction on Demand.”
The Vancouver media-tech company is best known for developing a platform that helps create, distribute and monetize video content for online consumption.
Founder and CEO Shahrzad Rafati regained control of the firm last fall following an initial public offering of a holding company that allowed BBTV Holdings Inc. (TSX:BBTV) to buy out the controlling stake in BroadbandTV Corp. from European investors.
The company estimates it has the second-most unique monthly viewers of all digital platforms: 596 million vs. Google’s 1.118 billion.
“That’s going to make them valuable to not only Google but anybody who’s in competition with Google,” Raffa said, adding if it were to come to pass it would be one of the largest deals made in B.C.
“When you’ve got a founding team or an executive team that isn’t looking to sell and is looking to grow and they have a strategy in their finance, that’s where the best deals happen because they can just keep saying no until somebody makes it impossible to say no based upon the price being offered.”
The social media management company has been at the centre of speculation for years.
“Technology continues to evolve very quickly so suddenly there were all kinds of different companies doing different variations of the same thing [as Hootsuite] and the big question locally became, ‘So where’s the logical place for Hootsuite to go next?’” said Raffa. “I don’t think that question has been answered yet.”
In 2018, Reuters (TSX:TRI) reported the company had engaged Goldman Sachs Group Inc. (NYSE:GS) to inquire about a potential sale. But the process was abandoned just before Christmas 2018 when Hootsuite determined offers were less than the US$750 million it was aiming for, according to a January 2019 Globe and Mail report.
Co-founder and then-CEO Ryan Holmes said in a November 2019 statement to BIV that Hootsuite had undertaken a benchmarking exercise earlier that year and determined that it “sit[s] very well amongst a number of criteria” for other companies that had gone public recently.
Holmes has since shifted his role from CEO to executive chairman. San Francisco-based Tom Keiser took over the top leadership job in summer 2020.
Raffa pointed out that Hootsuite has been an active buyer of other companies, most recently acquiring Sparkcentral Inc. in early January.
“They had a lot more brand when they first came out, and they raised a lot of money at very good valuations,” he said, noting Hootsuite could have executed a successful exit at that time. “You have to know what’s going on inside the boardroom and what the strategy is. And when there’s a new CEO in place, somebody may have come in with a new view that’s going to pivot the company in a very different way.”