Software firm Leonovus's bid to acquire Kanata data centre stalls

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An Ottawa-based software company says its planned acquisition of a local data centre has hit a roadblock as it struggles to secure financing for the deal.

Leonovus said in mid-March it had agreed to purchase Kanata-based PureColo in a cash-and-share deal worth $3 million, plus the assumption of $500,000 in debt. The acquisition is contingent on Leonovus raising $5 million to fund the purchase as well as due diligence and approval from the TSX Venture Exchange. 

On Thursday, Leonovus issued a statement saying widespread economic instability in the wake of the COVID-19 crisis “continues to impair” its ability to raise money to complete the transaction. Trading of Leonovus’s shares has been halted until financing is in place.

PureColo has been a rising star in the Kanata tech space, earning itself a Bootstrap Award last year and recently undertaking plans to double its footprint to attract more larger-scale companies to peer at its co-location facility, where numerous clientele can share data centre infrastructure.

But while PureColo has been on the rise, Leonovus has been struggling to build any such momentum for the past few years. The company, which develops software to help enterprises optimize and manage their data storage, has failed to generate a reliable cash flow. A series of consecutive quarters without revenue saw the company’s stock price bottom out to two cents.

In Thursday’s financial update, Leonovus said it’s continuing to test its software at the federal Department of Justice. The company said the project is now entering the final phase of testing, which is expected to be completed in the third quarter of this year.