One of Ottawa’s largest publicly traded companies says it’s been acquired by a U.S. competitor and private equity firm.
The moves comes slightly more than a month after Halogen Software said it was forming a special committee to explore ways of maximizing shareholder value in response to “significant interest” among prospective suitors in purchasing the local firm.
On Thursday, Halogen – which sells HR software-as-a-service solutions – said it reached a definitive agreement to be acquired by Saba Software, which is headquartered in Redwood Shores, Calif., and sells talent management software, for $293 million. Vector Capital – which privatized Ottawa software firm Corel Corp. twice in less than a decade – is also involved in the acquisition.
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That works out to $12.50 a share, or an approximate 23.5-per-cent premium on Wednesday’s closing price of $10.12. Investors Thursday had closed most of that gap, pushing the company’s shares up to $12.38 in mid-afternoon trading.
The purchase price is in the lower half of the predictions made in January by analysts, who suggested Halogen was worth between $11 and $15 per share.
“The transaction provides compelling and certain value, an attractive premium, and liquidity to our shareholders, after a comprehensive strategic alternatives review process,” said Rob Ashe, who chaired Halogen’s special committee, in a statement.
“Teaming up with Saba also strengthens and accelerates Halogen’s future growth prospects; these are two pioneers in learning and performance, who share a strong vision for the future of talent management.”
Separately, Halogen reported Thursday a fourth-quarter profit of $146,000, an improvement on a $2.6 million loss a year earlier.
Total revenue increased nine per cent over the same period to reach $18.7 million.
21-year journey
The company was founded in 1996 as Manta Corp. before changing its name to Halogen Corp. and reinventing itself in 2001.
When the company first opened its books in 2013 in a prospectus leading up to its initial public offering, the company said it had recorded losses for eight straight quarters and had a cumulative deficit of $48.9 million.
However, the recurring revenue that comes with the software-as-a-service model used by Halogen and others meant the Ottawa-based company’s growing customer base positioned it for future returns.
Last year, Halogen recorded its first-ever quarterly profit.
In a statement, Halogen executive chairperson Michael Slaunwhite paid tribute to the company’s journey.
“We have built Halogen into a market leader in performance management by investing in the talented and innovative team that began here in Ottawa more than 20 years ago,” he said. “I look forward to joining forces with Vector Capital and Saba. Together, we have the opportunity to scale faster and lead the way in performance, learning and engagement, and expand our global impact.”
Acquisition impact
It’s not clear what impact the acquisition will have on Halogen’s workforce, which stood at about 500 employees last year, with more than 400 of those in Ottawa, according to OBJ research files.
However, the acquisition will likely re-ignite discussions over whether Ottawa is becoming primarily an R&D outpost dominated by branches of multinational companies at the expense of a critical mass of corporate headquarters.
Such concerns were commonly debated in the early 2010s when a string of local tech companies including BelAir Networks, Bridgewater Systems, March Networks and Zarlink Semiconductor were purchased by larger – and primarily American – firms.
In some cases, acquisitions can lead to the local headcount growing or at least stabilizing. In the case of March Networks, for example, the video surveillance tech firm inroads in other parts of the world outside of its core markets in North and Latin America after being purchased by Chinese holding company Infinova.
In an interview last year, CEO Peter Strom said the company’s local headcount was approximately 155 in Ottawa, virtually the same as before the takeover.
However, others argue that takeovers rob Ottawa of corporate expertise as sales, marketing and investor relations functions are either eliminated or moved out of the city. The loss of this talent means there are fewer experienced businesspeople in Ottawa to support the next generation of startups, critics say.
Halogen itself played a role in muting such conversations after it started to trade on the Toronto Stock Exchange after a $55-million initial public offering. It was followed the next year by Kinaxis’ IPO and, in 2015, Shopify’s $123-million stock market debut.
Meanwhile, a cohort of rapidly growing privately held companies that includes Klipfolio, the Better Software Co., PageCloud, You.i TV and others are leading a new wave of tech startups that are attracting external financing and helping to boost employment levels in the city’s tech sector.
Nevertheless, Halogen executives previously painted the Ottawa-based company as the one likely to be buying up its competitors, rather than the other way around.
In a 2013 interview, then-CEO Paul Loucks said he wanted to build Halogen into Canada’s next billion-dollar software company. Mr. Loucks’ replacement, Les Rechan, said last June Halogen was “constantly looking for (acquisition) opportunities.”
The purchase is subject to court approval and the approval of at least two-thirds of the votes cast by Halogen shareholders.
