Whitehill gets swallowed up

Texas-based Skywire Software is acquiring Moncton-based Whitehill Technologies.

Now for a lot of folks, this type of acquisition is scary. There have been a few in recent years that have resulted in downsizing or even closure of the facility in the Maritimes.

But, in general, I am a big fan of these types of business combination. Yes, the power base does shift to Texas and that poses risks but it also poses opportunities.

I don’t know much about the Whitehill deal (nothing actually) but let me comment generically on the potential benefits from such a deal:

1. It could mean more growth capital. Many times SME NB-based companies have very little access to growth capital. That isn’t much of a problem in Texas.

2. It unlocks the monetary value of the company for local investors. If you own a company and never sell (any or all of the company) you do get cash flow from your investment (assuming the company is profitable). However, the only time you unlock the value of the firm is when you sell equity – that monetizes the underlying value of the firm. Why is this important? Because at least some of that money is reinvested in the local community – both in the form of basic purchases (housing, etc.) but also it means there is more money around to invest in other start ups. I don’t want to mention any names because Moncton is too small but let’s just say one of the largest houses in Kingswood Park was built by a guy who sold his stake in a local firm and one of the largest houses in that sub-division out Ryan Road also had recently sold his stake in a local firm. And let’s not forget about the gambling systems guy that sold his Moncton firm for a cool $250 million. I know for a fact that a lot of these guys/gals end up investing in other ventures in the local region.

And not to belabour this point too much but New Brunswick has the lowest number of publicly trade companies in Canada (per capita) and I am sure the lowest percentage of SMEs with outside non-government equity investments.

So, my opinion is, bring it on.

3. It provides foreign firms with exposure to this market. We know from a World Bank study that 80% of foreign investors (companies) re-invest within five years. Yes, there are flame outs but by in large the chances of expansion are even greater.

4. It means that the likelihood of Whitehill surviving is that much greater. We all know that IT firms have about a 90% failure rate. Do you want the list of NB IT firms that have collapsed just in the past two years? Whitehill has been a rare gem among the rocks but it’s future growth was certainly not assured. I have been watching Google just devour its competition – launching small software tools at a rate of about one a month. Each time they do, there are small Whitehills plowed under – without even a mention in the press. Whitehill as part of a larger entity is far less exposed to this kind of competitive threat.

So good luck. I hope that Whitehill will grow and expand in Moncton as part of this new entity.