Trends amidst Canadian and US Tech M&A
New York, NY (PRWEB) May 23, 2013
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Canadian tech start-ups are increasingly seeing their success develop through merger and acquisition (M&A) deals with larger US-based companies, according to new research carried out by MaRS, the Canadian business development engine.
The company has compiled its research into a series of articles and reports entitled Borderless Investments. The findings of the research have shown the general trend that the success of Canadian tech start-ups is closely linked to their ability to break outside of the regional boundaries, generally through being bought out or through an IPO. A MaRS spokesman said that the key for new Canadian businesses is getting themselves into a position where they are as close as possible to their end users – most often found in the tech-hungry population of their southern neighbor.
Speaking to the authors of the report, one Toronto-based venture capitalist explained, “As Canadians, we feel we are close enough to the US that we can still operate out of Toronto and cater to the American market. I don’t believe this to hold true. A company’s odds of success are better the closer they can get to their market.”
MaRS was able to amass a raft of solid information about the state of M&A activity between Canada and US tech companies, thanks to months spent researching and analyzing thousands of data points, speaking with venture capital experts in both the US and Canada and gaining industry insights from business leaders.
The research found that 183 Canadian tech companies have been the subject of M&A deals during the last five years. This seems very small in comparison to the 2,300 US companies that have been acquired during the same period, but it was found to align with the general 10:1 ratio that is commonly used to assess trends between the USA and Canada.
Of the Canadian companies that had been bought, the average number of years from start-up to acquisition was eight, and around 70 per cent were snapped up by US-based corporates.
An area that has caused contention among the experts surveyed was the selling price of Canadian businesses. The average price paid for a Canadian business was found to be around US$100 million, with a median value of US$32 million – compared to the US price of US$384 million and a median value of $82 million. Analysis of the M&A trends has pointed to a potential lack of late-stage development funding in Canada, leading its home-grown businesses to sell up at an early stage in order to be able to access the vital funding needed to promote growth.
The geography of the continent – and the relative locations of the two countries’ industry hubs – was also shown to affect the nature, number and value of the deals that took place. More than three-quarters (76 per cent) of the British Columbia-based businesses involved in deals were bought by US-based corporates, compared to 65 per cent of the Ontario-based businesses and 56 per cent of those headquartered in Quebec. BC’s proximity to the global tech haven on Silicon Valley in California, as well as the innovation hub of Seattle, seems to back up the notion that the closer a company is to its end market, the greater its chances of success.
The research also showed that US corporates still cast their nets fairly closely to the bases of their Canadian operations when looking for potential acquisitions. All six of the Canadian acquisitions made by Google were in Ontario – where two out of three of its Canadian offices are based.
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Read the full article here: http://www.datasite.com/trends-amidst-canadian-us-tech-mergers-acquisitions105.htm
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MaRS Research, April 23, 2013: http://www.marsdd.com/2013/04/23/canadian-high-tech-startups-new-report-highlights-secrets-to-their-success/