In recent years, Vancouver has become a vibrant and fertile ground for technology innovation. With strong technology roots and an influx of fresh entrepreneurial talent, the city is poised to become a major force in the technology community.
While British Columbia, and Vancouver in particular, has a long-standing reputation as a go-to source for technology services, there has been a fundamental shift in the region over the last decade toward intellectual property and innovation.
This shift has been fuelled by an influx of entrepreneurs from the United States and abroad moving to Canada. They have brought with them not only experience in technology innovation, but also capital-efficient business models across several technology sectors, notably Internet and software. This experience in building and scaling companies has served as the perfect complement to the Vancouver market's strong expertise in technology.
Over the last five years, we've seen an increase in mergers and acquisitions (M&A) activity in Vancouver's technology community. While buyers have always been attracted to this market, the Disney/Club Penguin acquisition in 2007 and NetApp's acquisition of Bycast in 2010 put the region on the map from an M&A perspective. Spurred on by these and other significant technology transactions, M&A activity has been gaining momentum, and buyers are being more aggressive with acquisitions. Overall, there has been a marked increase in Cascadian U.S.–Canada cross-border M&A activity. 2011 year-to-date deal volumes are tracking to 2007 levels, where 63 deals were announced during 2007 alone. In addition, in instances where deal metrics were disclosed, revenue multiples are approximately 20% higher in 2011 compared with 2010.
Cascadia anticipates an even greater increase in cross-border M&A activity in the Vancouver market over the next 12 to 18 months. Transactions completed in the past three years have proved promising and profitable, and the increased level of technology innovation has created a wealth of viable acquisition targets.
Based on recent deal activity, Cascadia Capital believes that the strongest opportunities in the Vancouver region are in Internet, software and IT services. The explosion of social media, smartphones and interactive content in the past few years plays to Vancouver's strengths. Likewise, software innovation is being driven by the business community's rapidly evolving needs. As businesses increasingly require programs to manage enterprise networks and corporate data in the cloud, software innovation will continue to be a major growth sector. As enterprises and SMBs look to automate their business models, we also expect to see explosive growth in e-commerce, cloud computing, data-centre automation, content management and technology-enabled IT services.
These sectors exhibit rapid growth and capital efficient business models and have shown tremendous growth and profitability. Vancouver is already a leader in some of the sectors, making B.C.-based Internet, software and IT services companies prime targets for cross-border transactions.
As the Vancouver technology market heats up, there are several things companies can do to make themselves desirable acquisition targets and take advantage of increasing M&A activity.
First, creating and executing a strong business plan is critical. Buyers appreciate solid, proven business models that can be easily incorporated into corporate strategies.
Second, companies should ensure that the business is properly capitalized for rapid growth and a defined path to profitability. Companies that are on solid financial ground with demonstrated profitability, or at least the strong promise of future profitability, will be more attractive to buyers and will receive higher valuations.
Third, companies should focus on positioning themselves as the leader in their market niche. Buyers will be looking to acquire the strongest player in the market with the best customer base.
Finally, likely M&A targets should build barriers to entry for potential competitors. If the cost of entry is high, potential buyers will be more likely expand into the region by acquiring an existing company rather than trying to wdevelop the product or service on their own.
Companies should create for themselves a position of a "must have" versus "nice to have" asset in the minds of the buyers.
