Wi-LAN plays it smart with Telus
February 8th, 2010
On the list of interesting tech plays in Canada, I continue to think Wi-LAN (WIN:TSX) is worthy of interest on a number of levels.
Although venture capital funds never played a role, which is part of an unfortunate reality (see prior post “Financing IP firms” May 1-07), Canadian retail investors continue to have the opportunity to play a patent strategy via this unique situation. Wi-LAN is usually doing the suing, so it was telling to see how they’d react to a wireless patent lawsuit filed by Telus.
With the news out that the two firms have signed an LOI to settle their dispute, here’s the take from the equity research team at WWCM:
Telus Risk Removed; Markman Hearing in March is a Key Catalyst
• LOI signed with TELUS to settle lawsuit over wireless patents. We always believed the TELUS claims were without merit and we are pleased management has been able to quickly resolve the issue.
• Investors should buy WIN on the recent weakness before Markman.
With this uncertainty out of the way we believe the Markman hearing could be a catalyst for large wireless defendants to take a license.• WIN has signed 84 wireless licenses including Nokia, RIM, Panasonic. Some of the large wireless defendants in the Markman include Apple, HP, Dell, Toshiba. A single large win apt to be materially positive for the stock.
• Reiterate Strong Buy rating and $3.70 target. We believe the risk/reward is very compelling with the wireless opportunity coming to a head. Our $3.70 target implies 19x C10E EPS.
Wi-LAN CEO Jim Skippen is doing a great job.
MRM
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Opportunity knocking as Canadian tech IPO window opens
February 6th, 2010
It’s enough to make an investment banker cry in his Grey Goose Martini.
Here we are in February 2010, and the Canadian tech IPO window is open for what is just the third time since 2003. Why is that a problem? ‘Cause there’s not enough product to launch onto the market, that’s why. Painful is the word. The local tech i-bankers haven’t had the decade that their mining or oil & gas colleagues have enjoyed, which makes the dearth of product all the more annoying for our tech friends throughout the Street.
The cream of the class of 2007 tech IPOs are showing some good signs. Dragonwave (DWI-TSX) is up strong, for example, even on the heels of raising US$130MM with their Nasdaq listing. Bridgewater (BWC-TSX) is up some 200% from the low. It’s no wonder that institutional investors are prepared to hear new stories. Some have already tapped the market: Biodiesel story Biox (a Wellington Financial Fund III portfolio co.) raised $50 million a few weeks ago for its IPO, co-led by Clarus Securities and TDSI, and is expected to start trading later this month (see prior post “Biox looks set to raise $50 million in IPO” Nov 28-09 and “Biox makes it on BMO’s Market Predictions list” Jan 21-10). Biox is backed by Birch Hill Private Equity Partners and VentureLink.
Unfortunately, there just aren’t that many new stories for investors to hear. The two obvious choices from last Fall may well sit this one out, it appears: Montreal’s RadialPoint and Vancouver’s Vision Critical, the latter being a WF Fund III portfolio co (see prior post “CDN tech IPO market stirring to life” Aug 20-09). Other candidates, such as Montreal’s OZ Communications (also a WF Fund III portfolio co.) were acquired by mega strategics before an IPO could even be contemplated (see prior post “Nokia buys OZ Communications” Oct 1-08). To be sure, there are some names in the queue. I suspect we may see Alberta’s fav tech firm, a well known Toronto-based VC-backed chip story and a couple of U.S.-based software players before the golf season is in full swing.
But there certainly aren’t many private tech companies of the size, scope and quality to make for much of a capital markets onslaught. Which, ironically, only makes the IPO window all the more “open” for those who have what it takes to launch in the coming months. Scarcity value has always been a factor in the stock market, and the fact that mutual fund portfolio managers know that they won’t see 10 tech IPOs this year means that they have to look all the more carefully at the roadshows that do make the rounds. (Just to be clear, we’re not talking about $3 million RTO IPOs on the TSXV.)
Which may present entrepreneurs and their VCs some pricing power.
If you’ve got a great story and are sitting on the fence, just remember one thing. RIM wouldn’t be the company it is today if it had stayed in the world of privates.
MRM
(disclosure - our Fund III owns warrants in Biox)
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All’s well in New Jersey’s VC land
February 5th, 2010
Dateline: Princeton, New Jersey
Your roving reporter brings more news from our southern neighbour. With street names such as Sand Hill Road and a development called Menlo Park, it should come as no surprise that New Jersey is one of America’s more successful venture capital centres. Here’s a precis on why:
- New Jersey has more scientists, engineers, and technicians per capita than any other state
- 40% of all new drugs approved by the US FDA originate in New Jersey
- Approximately $600 million of Federal R&D expenditures are granted annually to New Jersey universities and colleges
- New Jersey has an extremely well-educated work force, with the second-highest per capita income in the country
- New Jersey represented $49.6 billion of national revenues at venture-backed companies in 2003
- Cumulative venture capital investment in New Jersey totals $13 billion
Craig and I were meeting some investors and companies in advance of today’s New Jersey Technology Council Venture Conference. The mood is good, deals are closing again, funds expect to raise new capital in 2010, and portfolio companies are feeling much better post-Summer 2009. And they have every reason to feel chuffed. According to the Q4 2009 PWC MoneyTree report, the region of NY Metro (which includes Northern NJ) came third for new venture capital deployment in the USA, attracting US$466 million across 66 new deals; that’s an average cheque size of US$7 million, well above the national average of US$6.3 million. N.J. snared a 9.3% market share of the US$5 billion of VC capital that was deployed in the fourth quarter.
New Jersey has its own $80 million, 2003-vintage NJTC Venture Fund (now fully-invested), which counted the Royal Bank of Canada and TD Bank as limited partners. Some of the same fellows who are in the 2007-vintage Ontario Venture Capital Fund
Not to mention the fact that New Jersey tech cos and VC firms have their own political action committee, which supports legislators who are supportive of technology initiatives. Although Canada doesn’t allow PAC vehicles, there’s something to be said for Canadian entrepreneurs and VC firms getting better coordinated when it comes to messaging their government representatives.
Something is definitely working. Lots to learn from New Jersey.
MRM
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U.S. senior debt market creaks open
February 4th, 2010
Dateline: New York
Five times leverage is back!
I can report that senior secured debt loans are coming back to the U.S. market. With relatively low coupons, and what can only be termed as “high” leverage given the past 24 months, this bodes well for the private equity market. The providers of this capital aren’t the money centre banks, but the traditional buyers of syndicated Senior Secured Note deals, such as U.S.-based insurance companies (see prior post “Is the credit crunch ending?” Feb 2-10). They are getting first secured paper, but they are being flexible when it comes to leverage: even 5-6 times EBITDA has been achieved.
And this has all started to come to pass since January 1st. While not a trend in the making, it is definitely a sign. Although the High Yield market had been open for some time, this is a new (old) class of capital providers demonstrating a confidence in the markets and overall economy. Sound the trumpets!
The debt casino may be beginning to open, once again.
MRM
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Does 7,850 trump 1,600,000?
February 4th, 2010
Does 7,850 trump 1,600,000 milllion? For those of you who analyze numbers for a living, consider this:
Toronto Councillor Adam Vaughan received 7,850 votes in the 2006 Toronto municipal election. A handsome number, indeed, and it won him a seat at City Council despite the fact that there are probably 100,000 people in Ward 20 and he got less than 8% of them to get out and cast a vote in his favour. That’s democracy, and it certainly isn’t Mr. Vaughan’s fault that voter turnout was just 15% in his constituency.
Majority of the minority is how it works in many electoral forums, including most Canadian elections. It certainly is legal, just as it would be if only 3 people voted in the 2006 Ward 20 election and Councillor Vaughan received two of the three votes. Again, the election would’ve been legal under our system. But would it deliver what one might call “a mandate” to drive a certain agenda?
What’s interesting about that 7,850 figure is that it represents fewer than three days worth of airline passenger traffic at the Billy Bishop Toronto City Airport (2.86 days in fact). And yet it keeps Councillor Vaughan in office for four years at a salary of $99k per annum, plus another $250k for staff and office expenses. And a pension and severance when his time in office comes to an end, as these things invariably do.
Since Porter Airlines stared flying from the BBTCA, they’ve carried more than 1.6 million passengers. For 2010, the TPA expects well north of 1 million passengers through the airport, based upon the run rate of 80,000/month experienced last Fall. And that was before Porter added additional Bombardier Q400 aircraft, made right here in Toronto by 3,500 members of the Canadian Auto Workers union, allowing Porter to add routes to fancy places like Sudbury.
So as to not give Councillor Vaughan a platform to tell more fibs, I agreed to join him on the CFRB1010 John Moore show Tuesday morning at 820am. I thought we were to have 5 - 6 minutes to talk about the pros and cons of the concept of building a P3 pedestrian tunnel to the BBTCA (which would ultimately be paid for by airline passengers). Instead, CFRB set it up like a boxing match, with 30 second windows, and a bell that rang when the time was up; this didn’t come up in the briefing, strangely. 
By the time I realized we had been set up as a match, it was too late. On the air live. Fortunately, they only had time for 3 minutes on air, so I didn’t have to waste any more than 180 seconds of my life dealing with Councillor Vaughan’s thin gruel.
Listening to him stammer on (you can follow here), it was hard to know if our esteemed elected representative actually believed what he was saying (I doubt it), or was just reaching into today’s grab bag of glib fibs to leave RB listeners with the impression that he was busy doing his elected duty as he railed against the TPA’s proposed private-public partnership pedestrian tunnel concept.
In 2009, he opposed the tunnel concept on the basis that it was a gift for rich Torontonians and Porter’s shareholders (wrong). And that any Federal Stimulus funding could be better spent elsewhere (a view he has the right to hold). On August 24, 2009, he was quoted in the Toronto Star as saying:
“It’s a bunch of money to help one particular airline, not the airline industry. It’s a bunch of money to move a few very privileged people, not taxpayers,”
Now, if you are one of the 1.6 million people who have flown Porter over the past three years, it may come as a surprise to you to find out that you aren’t a “taxpayer” in Councillor Vaughan’s books. What we had there was nothing more than an attempt to stir people up, perhaps, but it certainly failed the “truth test”.
But then things got worse for Councillor Vaughan, when the Globe noticed the class warfare at work.
When he was challenged on this point by Globe and Mail columnist Marcus Gee, he ultimately denied having made the statement to the Star, claiming that he didn’t care if people chose to use Porter or not. He wrote a long August 27th letter to constituents with the following new position: “My quarrel is not with the choices people make to get to Ottawa.”
Doesn’t quite jibe with the position he took in the Star just three days earlier.
So, you’ll understand, I was prepared to hear a few fibs in the course of the radio show. ANd he didn’t let me down. Here were some of the choice lines that Councillor Vaughan doled out on CFRB:
“The private sector won’t touch it.”
An odd thing to say for a man who has never worked a hard day in his life in the private sector. Infrastructure pros advise that between 10 and 24 different private sectors players have the capacity to take on a P3 tunnel project.
“The TPA’s internal engineering and construction cost estimates are double the $45 million estimate they’re using.”
This might be called wishful thinking, but it certainly is the furthest thing from the truth. Why launch a construction project with a cost estimate that will fail the first external test by a potential private sector partner? You’d be dead in the water, and look like a dunce to boot. Councillor Vaughan has a hand-picked City fo Toronto Board of Directors representative on the TPA Board, who I’m sure would resign in the blink of an eye if Councillor Vaughan’s claim about cost coverups was true.
Our City deserves better.
I admire people like Rocco Rossi and George Smitherman, who are prepared to leave other lives and knowingly get into the foxhole with this kind of truth-defying, bush league municipal political advocacy. And then there’s the rest of Toronto’s taxpayers, who pay their taxes and fees and licences in an effort to do their part. They deserve better.
Toronto’s coming out of a bad recession. The thousand of jobs created and preserved over the past 18 months by businesses like Porter have helped make it better than it could have been. Our elected representatives need to focus on moving us forward, building our frail economy, and not trying to grab headlines with pockerful stories.
Toronto has moved on from the 2003 municipal election; at least most of Toronto has. As Mr. Smitherman put it the other day, “put me down as someone who isn’t going to get involved in things that aren’t my responsibility.” In a world of constrained time and finite energy, that is a wise place to work from.
But every three days, one had to wonder. Does 7,850 trump 1,600,000?
MRM
(disclosure - this blog, as always, reflects a personal opinion and in no way represents the views of the TPA, its Board/Staff or the federal government)
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