Friday January 28, 6:19 pm Eastern Time
Canada transforming into wireless hotbed
By Ian Karleff
TORONTO, Jan 28 (Reuters) - Canada, long stigmatized as a resource-dependent
economy, is proving itself a hotbed for wireless communications-related companies, with the
latest example Friday's well-received initial public offering of wireless software firm 724
Solutions Inc. (NasdaqNM:SVNX - news)
Toronto-based 724 shares closed up about 176 percent from their offer price after listing on
a when-issued basis on Nasdaq and the Toronto Stock Exchange on Friday -- a stellar
performance which analysts say could smooth the IPO path for other similar Canadian firms.
''There are some fabulous companies domiciled here in Canada and up until this point we really haven't seen a lot of these
companies go public,'' said Paul Allison, head of equity capital markets at full-service brokerage Nesbitt Burns in Toronto.
''To the extent that the market is looking for, and desiring to invest in these types of companies, it could accelerate the timing
and bring some of these public that weren't planning to go,'' he added.
And market watchers have seen a substantial increase in the past few years in the number of venture capitalists and
labor-sponsored funds seeking to exploit the potential of early-stage companies in Canada.
''Venture capital activity has been building over the past three years,'' said Mary Macdonald, president of venture capital
tracking firm Macdonald & Associates Ltd.
''(The venture capital market is) really heating up now because we are seeing more tech deals being done and they need more
and more money to grow quickly and stay competitive with their U.S. counterparts,'' she added.
Macdonald said the amount of money invested in early-stage companies in Canada will top C$2 billion for 1999, up more than
20 percent from C$1.6 billion in 1998. However she noted the number of deals remained steady at about 1,000.
A number of made-in-Canada success stories have debuted or hit investor radar screens lately, with JDS Uniphase Corp.
(NasdaqNM:JDSU - news), a supplier of parts for fiber optic equipment in phone networks, leading the pack.
Research In Motion Ltd. (NasdaqNM:RIMM - news) is another Canadian-based company that has raised eyebrows in the
U.S. with its wireless Internet pagers, and in 1999 its stock rose 594 percent.
Sierra Wireless Inc. (Toronto:SW.TO - news), a manufacturer of wireless devices that allow laptops to connect with corporate
networks and the Internet, made its stock exchange bow in May 1999 at C$14.50, and has seen its shares surpass C$100 on
three high-profile deals with U.S. companies. Analysts are now forecasting the stock will hit C$200.
And investors rediscovered the potential of Certicom Corp.'s (Toronto:CIC.TO - news) encryption technology, which can be
used to make wireless e-commerce secure and prevent hackers from eavesdropping on communications. The company's
shares are up 900 percent from their year low of C$10.35, trading at around C$101 on Friday.
Other companies that have made a mark in the wireless space include Infowave Software Inc. (Toronto:IW.TO - news), and
mobile dispatch provider MDSI Mobile Data Solutions Also, two Calgary-based firms Wi-Lan Inc. (Toronto:WIN.TO -
news), which is developing wireless high-speed Internet access, and Cell-Loc Inc. (Vancouver:CLQ.V - news), a company
devoted to technology that pinpoints the location of cellular phones, have also seen their shares jump on wireless excitement.
''Nothing attracts people's attention like success,'' said Brendan Kyne, vice-president at Triax Investment Management Ltd. in
Toronto and manager of the Marathon Plus Aggressive Growth Fund.
Kyne has noticed a proliferation of U.S. venture capital operations locating in Canada, to find what he calls the next Research
in Motion while it is still cheap.
Also, start-up companies find it cheaper and easier to approach the large investment houses after they have secured enough
capital to keep them alive in the short-term, thereby lowering their level of desperation, said Kyne.
He estimates that the Canadian venture capital market is about two years behind what has developed in the U.S., where 90
percent of companies raise venture capital six months prior to selling shares to the public in an IPO.
Currently, only 25 percent of Canadian companies tap venture capitalists for cash six months before launching an IPO, but this
is rapidly changing, added Kyne.
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