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Are we seeing more privatization of TSX-listed tech startups?

Over the last few weeks, we’ve seen more of this. We decided to weigh in on what this all means for you…

What is the news?

Last week we discussed TrueContext Corp's privatization and eventual delisting from the TSXV ventures.

This week we get two more pieces of delisting news:

• Montreal based Nuvei agreed to be privatized by Advent International for $6.3b USD

• Lightspeed founder, Dax Dasila, who recently returned as CEO, publicly discussed the possibility of taking the company private in an interview with the La Presse. 

Why is the Nuvei news important?

Of the current batch of TSX/TSXV traded tech companies, Nuvei is the largest one to be taken private. It is also dual listed on the Nasdaq.

The larger size and dual listing most likely means that it had more analyst coverage and more institutional investors than the other companies that went private. This may be reflected in the 56% premium that Advent is paying to the last closing price prior tot he announcement. Like previous announced privatizations current management and PE investors are rolling over their holdings. Combined, they owned over 50% of the company, meaning this transaction will close. Interestingly enough, to make this deal happen they had to each reduce their holdings and sell some to entice Advent to make the purchase.

This implies they believe that the public markets are undervaluing the company and they will be better off as a private company.

What has Lightspeed done since discussing going private?

Over the last week Lightspeed has cut 10% of its staff (280 people) and launched several cost-cutting initiatives. The goal is to get the company to adjusted EBITDA break even. (FYI: The formula for calculating EBITDA is: EBITDA = Operating Income + Depreciation + Amortization

These announcements are an attempt to illustrate a cashflow growth positive way forward to potential investors in hopes that it will increase the value of the company.

In the meantime, the company will review strategic alternatives to increase the value of the company. This means that it will explore selling the company to other companies or private equity investors.

We will soon know if the private markets value Lightspeed more than the public markets.

Let’s break this down further

The public and private markets continue to value companies differently. While the private markets have become more picky, they still are willing to invest in future growth as long as they believe it will result in cash flow companies in the future.

The public companies are trading off future growth for more near term cashflow and profitability.

As long as this is true we will see more companies being taken private. 

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