Softchoice's Acquisition by World Wide Technology

Softchoice Corp., the Toronto-based IT services leader, has just made headlines by agreeing to a monumental $1.8 billion acquisition with World Wide Technology Holding Co., LLC, based in St. Louis, Missouri. This move is stirring conversations across the tech sector, as it marks yet another instance of Canadian tech companies delisting from public markets due to changing market conditions.

Details of the Deal

The deal entails World Wide Technology paying $24.50 per share for Softchoice — a generous 14% premium over the company's recent closing price on the Toronto Stock Exchange. This acquisition aligns with World Wide Technology's strategy to enhance its footing in the Canadian market.

The Trend of Going Private

What’s striking about this acquisition is that it positions Softchoice as the 11th out of 20 tech firms that went public during the pandemic boom and later opted to delist. Unlike many of its peers, Softchoice is exiting the public arena at a profit, showing a 22.5% increase from its initial public offering price of $20 per share established during its IPO in May 2021.

Industry Insights

Industry expert John Ruffolo identified two driving forces behind this current trend of tech companies going private. Firstly, he noted the challenges of liquidity on the Toronto Stock Exchange, saying, “When you’re just listed in Toronto, you don’t get the clear pricing of what a company is worth.” Many successful firms find better clarity and growth potential by listing on both Canadian and U.S. exchanges.

The second factor driving this trend is the current rate of the Canadian dollar, which as of now sits at 70 U.S. cents, leading to an impression of being undervalued. "Boy, do we ever look cheap," Ruffolo stated, suggesting that U.S. investors are likely to eye Canadian companies for acquisitions in the near future.

Resilience in the Canadian Tech Sector

While the Canadian tech landscape has faced a downturn over the last few years, an analysis from The Globe and Mail reveals that there are a formidable 71 companies reporting annual revenues exceeding $100 million, signifying robust growth prospects. Some of these firms are contemplating going public again, signaling resilience and potential recovery in the market.

Dani Lipkin, managing director of the global innovation sector with TMX Group, remarked that 2023 has been a remarkable year for tech listings, highlighting the health of the ecosystem despite privatization activity. Companies like Groupe Dynamite Inc. have successfully navigated IPOs, illustrating a fruitful year for the exchange that he believes will continue.

Softchoice’s Financial Journey

Softchoice’s journey began in 2013 when Birch Hill Equity Partners took it private, and later, after its 2021 IPO, it raised substantial funds to reduce debt and reinvest in growth. Over the last year, ending September 30, the firm recorded a net income of $52.9 million with revenues reaching $1.04 billion, albeit slightly down from previous periods.

Analysts' Projections and Company Prospects

Analysts like Martin Toner at ATB Securities have optimistic forecasts for Softchoice, expecting significant growth in cloud migration and AI services. He recently increased his one-year target price for Softchoice shares from $23 to $26, anticipating the company’s strategic investments to bolster its market share.

World Wide Technology's Recognition of Softchoice's Value

David Steward, founder of World Wide Technology, recognized Softchoice's growth potential as a vital asset in his remarks regarding the acquisition, which is anticipated to finalize in early Q2 of 2025 after necessary regulatory approvals, including a noteworthy termination fee of $49 million.

The Bigger Picture.

This strategic move follows other similar trends, as in the recent past Canadian fintech Payfare also fell under the radar for going private via a $201.5 million acquisition by U.S. fintech giant Fiserv, suggesting a larger narrative of cross-border acquisitions reshaping the Canadian tech landscape.

Stay tuned as we continue to bring you updates on this significant transformation in the technology sector!