Two more Toronto Stock Exchange-listed companies announced plans to go private, after a string of takeovers last year.Paige Taylor White/The Canadian Press
Over the past three years, a steady stream of Canadian tech companies sold to U.S. buyers.
The stream is about to become a torrent.
U.S. President Donald Trump’s tariff threats have knocked back the value of the Canadian dollar and made domestic takeovers even more attractive to American private-equity funds and tech companies. When the loonie dives, margins soar at a business with Canadian dollar expenses – such as salaries – and U.S. dollar revenues.
On the northern side of the border, bankers say domestic private equity and venture capital funds face increasing pressure to cash in on tech investments. With the initial public offering market still in a deep freeze, selling to a U.S. rival or deep-pocketed U.S. fund manager becomes the best available exit.
In recent weeks, two more Toronto Stock Exchange-listed companies announced plans to go private. Miami-based fund manager H.I.G. Capital agreed to buy Converge Technology Solutions Corp. CTS-T in a deal with a $1.3-billion enterprise value – debt plus equity – while Softchoice Corp. SFTC-T sold to St. Louis-based World Wide Technology Holding Co. for $1.8-billion.
These deals followed on a string of takeovers last year, including TSX-listed Nuvei Corp. NVEI-T, Copperleaf Technologies, TrueContext Corp, Q4 and Givex Corp.
“The momentum behind going private transactions in Canada’s technology sector will continue in 2025,” partners in law firm Bennett Jones predicted in a recent study. “This trend can be largely attributed to a combination of depressed stock prices, difficulty in accessing capital and disconnects in intrinsic value, changing market conditions and growing interest from well-capitalized U.S. private equity firms.”
In domestic tech circles, there is widespread frustration that stock market valuations don’t match companies’ growth potential, according to Bennett Jones. The law firm said: ”The less-than-robust Canadian capital markets activity in 2024 will continue to act as a catalyst for more going private deals.”
The big news in Canadian tech these days isn’t an acquisition. It’s when a company such as Montreal-based Lightspeed Commerce Inc. runs a strategic review and doesn’t get sold.
Last year, 273 mergers and acquisitions worth $9-billion played out in the Canadian tech sector, according to Bennett Jones. Only the mining sector experienced more M&A activity. That deal-every-business-day pace is expected to increase.
The Globe and Mail recently highlighted 71 private Canadian tech companies with more than US$100-million in annual revenue. These relatively mature businesses would be ideal candidates for IPOs, if investors were receptive to new offerings. If going public is not an option, many of these companies may end up on the auction block.
Any M&A transaction takes both a willing buyer and seller. A weak Canadian currency gives U.S. acquirers even more reason to hunt for bargains. On the other side of the border, analysts say Canadian tech executives and their backers are becoming more willing to listen to offers, owing to the uncertain economic environment.
“Software companies may look to sell if they experienced slower growth through 2024,” said analyst Paul Treiber at RBC Capital Markets in a recent report. “Concerns that growth for these companies may remain slow and that cashflows may not improve in 2025 may compel targets to sell themselves sooner rather than later.”
Tech executives, or their venture capital backers, would consider businesses with less than 30-per-cent annual revenue growth as potential sales candidates, Mr. Treiber said, particularly if the company is unprofitable or needs capital.
American PE funds and tech companies will face competition for targets from large domestic players such as Constellation Software, a serial acquirer, and CGI Inc., along with home-grown fund managers. But as long as Mr. Trump’s threats of a trade war weigh heavy on the loonie, the President will be helping make American tech even greater, by making Canadian tech firms even more attractive takeover targets.