March 28, 2024: Mixed messages for Canadian tech 🇨🇦

TSX Ventures sees another tech company go private, plus interesting reads for your long weekend

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Mixed messages for Canadian Tech

TSX Ventures sees another tech company go private. What’s the deal?

What is the news?

Ottawa based TrueContext announced that Battery Ventures will be taking the company private for approximately $150m.

Why did Battery purchase TrueContext?

Like all private equity deals Battery saw significant value at purchasing TrueContext given it current valuation, its base of operations and the ability to improve revenues and/or margins. The company and investors must have felt that the markets would not allow TrueContext to invest in its future without punishing its valuation and that they would be better off private.

Why are we covering this story?

Since the market has turned we have seen the number of publicly traded technology stocks shrink on the Canadian stock exchanges. It is one thing to see companies not go public but we have seen many public companies go private. This continues the trend with TrueContext which has been publicly traded since 2007 deciding to go private. Earlier this month MDF Commerce announced that KKR was going private.

What does this mean for Canadian tech companies?

This implies that Canadian public markets may not be offering high enough valuations or supporting the companies' need for long-term growth. Moreover, the costs of remaining public, such as fees and audits, can be burdensome.

This situation could disadvantage both Canadian tech companies and investors. Canadian companies considering going public might now view the US markets as the only viable option. These markets typically require more mature companies, which could mean a longer journey for startups to exit.

For Canadian investors wishing to invest in Canadian exchange ETFs to gain exposure to the rapidly growing tech sector, they might not be getting the expected exposure. It's also disappointing for Canadians who want to see the benefits of tech sector growth stay in Canada, as many of our public companies are now owned by US private equity firms. These firms, rather than the average Canadian, will profit from any increase in valuations.

What does this mean for founders?

We are not quite sure.

While the US public markets have seen tech rebound, Canadian ones are still not excited by Canadian tech companies being public. This mixed message may impact the private valuations but it is not clear.

Also we can expect to see every large private equity fund poke around the Canadian market for acquisitions.

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