Silicon Valley North #11 Sep'99

The Way I See It… by Michael Volker

Hot Valuations = New Opportunities for B.C. Technology

It's been a hot summer for a number of B.C. technology companies whose valuations which have been heating up nicely. Just for fun, let's take a look at some of the action (all numbers are reported in Canadian currency).

In May, Sierra Wireless Inc's (TSE:SW) IPO (Initial Public Offering) hit the street with 4.5 million shares priced at $14.50 per share giving it a valuation of $200 million. Sierra Wireless, a Richmond firm, provides wireless data communications equipment used for wireless applications such as internet access and remote data base inquiry. Current annualized sales are in the $30 million range with net profit of $2.7 million.

CREO Products Inc. filed its preliminary IPO prospectus in May at a suggested valuation of $660 million. CREO is one of BC's largest and fastest growing tech companies specializing in pre-press printing technology.  CREO's current annualized sales volume is running in excess of $230 million with over $22 million in net earnings. In view of CREO's excellent technology portfolio and strong market position, it's definitely a "buy".

Pivotal Corporation of North Vancouver, a producer of client management software,  announced its IPO in July implying a market value of $375 million even though the company is showing about $4 million in red ink on sales of $37 million (to June, 1999). At this valuation, local early stage investors like Ventures West Management and Bank of Montreal Capital Corp. will fare well when they cash in.

But the hottest deal of the summer belongs to HotHaus Technologies Inc. for its $414 million merger with Broadcom Corp (NASDAQ:BCRM). In fact, this is among the biggest deals done in Canada and is the largest one ever for B.C. HotHaus, a 5-year old Burnaby company of 50 is doing $5 million in sales of DSP algorithms for the voice-over-internet-protocol market. Hats off to Ross Mitchell, CEO and Chairman Morgan Sturdy for pulling this one off after HotHaus' strategic investor, Texas Instruments, acquired a major competitor. An early backer, The Working Opportunity Fund, will reap a 25-fold return on its $4 million investment.

Another sellout to the Americans? Not to worry. MacDonald Dettwiler (now part of Orbital Sciences), EA Canada (formerly Distinctive Software), Seagate Software (formerly Crystal Software), and Motorola Canada (formerly MDI Mobile Data) are all still here and growing stronger.

Although not a new listing, albeit still a youngster, we can't overlook PMC Sierra Inc. (NASDAQ:PMCS) the Microtel Pacific Research spin-off (1996) which is enjoying a market capitalization of a whopping $8 billion! PMC is shipping more than $325 million (annualized) in ATM chips with a bottom line of $85 million (after tax), unquestionably B.C.'s sales and profit leader. I'm betting on PMC to be the first B.C. firm to hit the $500 billion sales milestone.

Money talks. Let's hope that our politicians are listening. If they're smart they'll figure out a way of making it attractive for these fellows to re-invest some of their gains and take a lesson from our silicon valley friends who enjoy such benefits as tax-free rollovers and other investment incentives.

These valuations are great for B.C. technology firms for a number of reasons. They are creating new technology millionaires who will serve as role models for other entrepreneurs, augment the growing pool of business angels and will give the venture capitalists new found cash and confidence to do more deals.  And, it certainly puts B.C. on the international technology map! U.S. financiers, Silicon Valley peers and others are starting to take notice of the opportunities which we have here especially in niche areas like communications chips and enabling software.

The way I see it, these hot valuations will stimulate the growth of our technology industry which, by my estimates, is now worth well in excess of $30 billion!



Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He is a former executive director of the BC Advanced Systems Institute and is chair of the Vancouver Enterprise Forum. He may be reached at mike@risktaker.com.

Copyright, 1999.