Canada's tech stock star Softchoice is acquired by World Wide Technology (WWT) in a bombshell deal. The purchase price? A hefty 1.8 billion Canadian dollars – a deal that will make the Toronto Stock Exchange (TSX) one heavyweight poorer. After just a few years on the stock market, the 35-year-old company is moving to private ownership, and investors can look forward to a substantial premium: 24.50 CAD per share – about 14% above the last stock price.
The flash deal and its details
The takeover, announced on Tuesday morning, reads like a screenplay for perfect timing: an all-cash deal secured by TD Securities and a contract that is crystal clear even in the worst-case scenario. Should the agreement fail for any reason, a termination fee of 49 million CAD is provided—a safeguard not commonplace in transactions of this magnitude.
Softchoice shares rose about 14% after the announcement, marking the largest intraday gain since March. A hefty reward for investors who entered at the IPO at a price of 20 CAD per share in 2021.
The New Power Behind Softchoice
Behind the acquisition is World Wide Technology, a US giant in the IT sector. CEO Jim Kavanaugh praised Softchoice effusively as a "transformative force" in the technology industry. In fact, the company has changed the way businesses use digital technologies with its cloud solutions and IT services in recent decades.
The purchase is a strategic move by WWT, which, with a revenue of over USD 17 billion, is one of the largest privately held IT companies in the world. With Softchoice, it strengthens its presence in the North American market and sends a clear message: WWT not only wants to participate but to dominate.
An IPO with a Short Life
Softchoice had its big moment only in 2021, when it ventured onto the stock market alongside other tech giants like TELUS International and MDA Space Ltd. However, while many IPOs of this era are now considered overvalued, Softchoice has held up well – at least until now.
The stock exchange loses not only an IT heavyweight with Softchoice, but also a symbol for the Canadian tech sector. In a market where local companies are often swallowed by foreign giants, the loss is noticeable.
What does that mean for the industry?
The acquisition of Softchoice could be a signal for further consolidations in the IT sector. Companies specializing in cloud technologies and IT services, in particular, are in the focus of major players like WWT, who want to expand their market shares.
At the same time, the deal shows that investors are willing to accept high valuations despite market uncertainties when the strategy and potential are right.
However, for Canada, the departure of Softchoice once again means the loss of a prominent company from its own stock index – a development that raises questions about the future of the domestic tech industry.
