TECH & INNOVATION MARKET UPDATE
The information you need to stay up to date on developments within the tech ecosystem.
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CIBC Technology and Innovation Conference 11.0CIBC Capital Markets’ leading annual tech conference is fast-approaching, taking place on May 24, 2023 at CIBC Square. Hear from innovative North American tech companies on how they are successfully navigating today’s evolving market, and discover new opportunities. Chris Barry, President of Microsoft Canada joins as the keynote speaker to talk on the future of AI. This conference is by invitation only. Please contact your CIBC representative for more information. |
Canadian technology sector performance and valuation
| EV / NTM revenue multiples 1 | LTM sector price performance 1 |
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Source: FactSet and Pitchbook; as at April 30, 2023; in C$ unless otherwise noted.
1 Please refer to the end of the document for technology group constituents.
Canadian Venture Capital market update 2
2 Market update for April 2023. 7 deals with no announced value are omitted from deal value.
3 17 deals with no announced value are omitted from deal value.
Noteworthy Canadian deals
T&I @ CIBC
Deal Activity
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MSP Corp. – C$100+ Million Acquisition by Alfar Capital and Walter Capital Partners CIBC Capital Markets acted as financial advisor to MSP Corp, a leading managed service provider group, on its acquisition by Alfar Capital and Walter Capital Partners in a total transactional value of over C$100 million. Once acquired, MSP Corp will merge with Groupe Access to create a comprehensive managed services platform, developing leading solutions in digital transformation, cloud computing, and cybersecurity. |
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TheGuarantors – $35M Credit Facility CIBC Innovation Banking provided $35 million in growth capital financing to New York-based company TheGuarantors. TheGuarantors is a fintech company building financial and insurance solutions for renters and landlords, helping improve accessibility and affordability for 46 million American households renting their homes. The company is listed on The Inc. 5000, Forbes’ Best Startup Employers, and The Financial Times’ Fastest Growing Companies. |
Technology & Innovation in‘sites’ with CIBC Equity Research
T&I ‘Bits & Bytes’
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Q1/23 US software earnings recap – Strong results despite low expectations into the quarter Earnings results from US software companies in April were better than previously feared, with 86% of the software names we track beating both revenue and EBITDA estimates, with revenue coming in ~2% above Street expectations and EBITDA beating estimates by 4.5%, on average. Post Q1 results, the Street revised its F23 revenue and EBITDA estimates upwards by an average of 1% and 3%, respectively. Artificial intelligence (AI) was a key theme throughout tech earnings, with continued investments in AI by all the major US tech giants. The advancement of AI initiatives, including generative AI, also showed no sign of slowdown, with Microsoft’s ChatGPT and Google’s newly unveiled Bard AI continuing to increase in popularity while others work to develop their own generative AI tools as well. Cost-cutting through restructuring also remained prevalent, with over $3B in severance charges realized in Q1 across the major US tech companies. |
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IT spending slowing – Early reporters results raise questions about demand Recent earnings results from IT services firms have painted a mixed picture of the demand environment for IT spending. Infosys and TCS noted slowing decision-making at clients and delayed or cancelled discretionary spending projects. Value added resellers (VARs) have been navigating supply chain pressures and now appear to be facing a more challenging demand environment. Large-cap VAR CDW pre-reported Q1 earnings that missed Street forecasts. CDW now expects 2023 US IT market spending to decline at a high-single-digit rate versus its previous forecast of flat Y/Y growth. Uncertainty appears to be broad-based across geographies and verticals, with particular delays in banking and financial services in the wake of US regional bank failures. However, IT spending commentary hasn’t been all negative. IBM was more optimistic on the demand environment, particularly for software solutions and digitization projects focused on cost optimization. With a handful of our coverage (CTS, SFTC, GIB.a) potentially exposed to similar trends, we are paying close attention to IT spending activity and the impact on IT services equities. |
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Looking for the exit – Is the IPO freeze starting to thaw? After a record 2021, the IPO market ground to a near halt in 2022 with Americas IPOs hitting their lowest levels in 13 years. The start of 2023 has remained much the same as the market looks for more clarity on the interest rate ceiling and assesses the correct forward revenue (EBITDA?) multiples to apply to tech IPO candidates. That said, green shoots are starting to emerge, with marketing automation firm Klaviyo Inc. announcing plans last week for an IPO in September. If Klaviyo does undergo an IPO in that timeframe, it will be the first large initial public offering of 2023 and could set the stage for dozens of other late-stage privates to hold IPOs, possibly including Stripe, Instacart, Databricks, and SpaceX. |
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No news is bad news – Tech firms push back on Bill C-18 Discussion over the federal government’s online news bill has grown louder in the last month, with META and Google each taking stands in opposition to the legislation. Bill C-18 aims to support Canadian news organizations by forcing tech platforms to pay for news content hosted on their sites. The Canadian government is expecting tech companies to fund Canadian news expenditures through a combination of privately negotiated deals and payments for linked content. We wrote about Bill C-18 last year, noting the similarities to an Australian bill that led Facebook to remove news content from the platform, eventually forcing the Australian government to make amendments. We expect that Bill C-18 might result in a similar compromise, given the threat of news content being removed from major tech platforms, valid concerns around the threats to journalistic independence, and the impact that the removal of news would have on independent publications. |
Recent technology news
“Where are all those tech workers going? A Silicon Valley exodus is shaking up the landscape.”
Is Silicon Valley’s grasp as America’s tech capital weakening? With massive layoffs from the Silicon Valley tech firms and looser work-from-home policies, other American tech hubs are gaining more market share. According to census data, nearly 250,000 people left Silicon Valley amid the pandemic (April 1, 2020, to July 1, 2022) and Miami has seen tech funding quadruple in the last three years. Philadelphia, Chicago, Denver, Austin, and New York have recently shown relatively large increases in deal flow and investment.
Read the full article at the Washington Post.
“Is Canada ready for an EV Future?”
Flavio Volpe, president of the Automotive Parts Manufacturers Association and Paris Marx, host of the Tech Won’t Save Us podcast and author of the Road to Nowhere, discuss the future of electric vehicles in Canada (EVs). In light of the US government’s goal of EVs being 50% of new car purchases by 2030 and Canada’s deep well of natural resources available – the future of EVs in Canada seems inevitable.
Listen to BetaKit’s podcast episode.
“Software spending growth will accelerate by 40% in 2023, but it doesn’t feel that way.”
Gartner forecasts predicts that software spending should rise to 12% in 2024 from 9% last year – a 40% change Y/Y. After months of hearing about earnings slowdowns from the biggest tech firms, this prediction can feel hard to believe. Many of the companies that make news headlines have seen their 30-50% annual growth rates levelling closer to 12%. Elsewhere though incumbents are gaining traction making way for a vibrant but more competitive market.
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Tech & Innovation Key Contacts
Canadian Technology Constituents
High-Growth Canadian SaaS – Ceridian, Copperleaf, Coveo, Descartes, Dialogue, Docebo, Kinaxis, Lightspeed, Magnet Forensics, Q4, Shopify, Thinkific
Large Cap Canadian Tech – Altus, Blackberry, Celestica, CGI, Constellation Software, Converge Technologies, Dye and Durham, Enghouse, Evertz Technologies, Nuvei, OpenText, Softchoice, Well Health
Mid Cap Canadian Tech – Absolute Software, Calian, Computer Modelling Group, D2L, E Inc., Payfare, Real Matters, Sangoma, TECSYS
Small Cap Canadian Tech – Alithya, Baylin Tech, BBTV, Blackline Safety, Farmers Edge, Kneat, Optiva, Pivotree, Quarterhill, Sylogist, Terago, Vecima, Vitalhub, WeCommerce
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