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News: 'Orphaned' local firm buys itself back from U.S. owners


< h4>By PETER HADEKEL, The Gazette July 7, 2010

When it comes to mergers and acquisitions in Quebec, the story is often the same.

A local company becomes successful, attracts the attention of a bigger player in the U.S., and agrees to be purchased.

Such foreign investment can be a good thing, but it often moves decision-making out of the province and robs Quebec of entrepreneurial spirit.

Montreal software company Speedware Inc. is writing a different version of the story. Last month, it concluded a financing agreement that allowed management and employees to buy back the company from U.S. owners who had acquired it in 2005.

The .9-million deal was underwritten in part by Fondaction, the venture-capital arm of the CSN labour federation. Andy Kulakowski, Speedware's chief executive, says Fondaction recognized the potential of the company to become "a Quebec champion" in its software niche -helping IT clients migrate from older, legacy systems to new platforms.

"I think we pulled off a bit of a mini-miracle," he says.

The buyback from California-based Activant Solutions Inc. leaves Fondaction and Speedware management with joint control of 82 per cent of equity. The balance is held by Speedware's 50 employees, who were offered the chance to buy shares in the refinanced company.

Employee ownership is already proving to be a big morale booster, Kulakowski said in an interview. "People are walking around here with a spring in their step."

The company, founded by local entrepreneurs as Info- Boutique in 1976, moved in and out of several software niches in subsequent years. In 1992, it was renamed Speedware and a year later went public on the TSX, raising million.

Surviving the tech crash in 2001, Speedware posted excellent growth and consistent profitability, with annual sales exceeding million, enough to catch the eye of Activant.

The U.S. firm was attracted by several of the acquisitions Speedware had made and wound up buying the company in 2005 for million U.S., in what Kulakowksi described as an excellent deal for shareholders.

Activant said it liked the Speedware product line in four growth markets for enterprise software: lumber and building materials, the automotive aftermarket, wholesale trade, and hardware and home-centre retailing.

But almost immediately it became obvious that the new owners weren't really interested in growing or investing in the Montreal part of the operation. What they really wanted were the U.S. parts of the business that Speedware had acquired in the market for enterprise software.

"The original Speedware became a little bit of an orphan," Kulakowski recalls. "We weren't core to their strategy . . . and they wouldn't allow investment into this operation for future use. They were just drawing out all the profits they could."

It didn't take long for Kulakowski to approach Activant with a plan to spin off the Montreal operation to the managers here. His sales pitch was quickly rebuffed, but he didn't give up.

Without authorization, he continued to "work the Quebec investment community" on his own to see if there was any interest in financing a buyback.

"We had built up incredible momentum," more than doubling sales out of the Montreal office, he said. The story piqued the interest of several potential investors, including the Desjardins Group and the Quebec government's holding company, SGF.

They liked the fact that "we were a company with a customer base, with a real product, with an R&D group, with sales, with new accounts, with blue-chip customers, and doing very well."

Kulakowski submitted an unsolicited buyback offer to Activant in 2007 and while the U.S. owners were impressed with the offer, they decided to pull back from a deal because the financial crisis was just starting to unfold.

Once the economy began to recover in late 2009, the owners saw the value of a sale and an agreement was finally concluded in June with help of a .9-million investment by Fondaction and a loan from the Bank of Montreal.

Genevieve Bouthillier, an investment manager with Fondaction, likes the fact that Speedware is "a world leader" in its main market niche -helping IT clients migrate from HP e3000 systems to open platforms.

"We also really like the management team and their entrepreneurial passion. We thought this was a great opportunity to develop expertise in Quebec."

© Copyright Peter Hadekel




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