Just in case you thought things in the stock market weren’t challenging enough, consider that many of the TSX's best technology companies are trading near, or even below, cash value.
There are two buckets to consider. First, the names who are EBITDA-positive, with the second category being the ones who are still burning cash. Analysts will tell you that in either case “the intellectual property is practically being valued at zero.” The share prices used for this analysis were current as at December 5/08. For those not math inclined, enterprise value equals market cap plus net debt (or minus net cash) on hand.
EBITDA-positive Tech Companies Trading at or Near Cash Value:
- Bridgewater Systems (OTC:BDWRF): C$4.9 million Enterprise Value (”EV”)
- MOSAID Technologies (OTC:MBTHF): C$32.4 million EV
EBITDA-negative Tech Companies Trading at or Near Cash Value:
- DragonWave (DRGNF.PK): C$6.6 million EV
- Intermap Technologies (OTC:ITMFS): -C$0.9 million EV
- March Networks (OTC:MNTWF): -C$15 million EV
- Sandvine Corp. (OTC:SNVNF): -C$3.6 million EV
- Sierra Wireless (NASDAQ:SWIR): -C$49.5 million EV
- Tundra Semiconductor (OTC:TRSCF): -C$1.4 million EV
The stock market is in quite the shambles. The combined enterprise value of these eight companies is roughly negative $27 million, which means they are valued at less than cash as a group. Certicom (OTC:CERTF) would also have made the second group if it weren’t for the Research In Motion (RIMM) hostile bid (see prior posts “RIM’s $1.50 Certicom bid just the beginning,” December 3-08 and “BNN interview on BCE and RIM/Certicom deals” December 4-08), which pushed its share price beyond cash value.
If these market values are sustained for a meaningful period of time, look for more M&A activity, and maybe even a going-private or two. Our friends in the venture capital and cross-over investing world should take note (see prior post “Financing IP firms” May 1-07). Why spend C$30-C$80 million to build a new technology company, if you can acquire proven one for a bit more than its cash value?
And, we’d be happy to provide the debt to make the deal work.