TeraGo Inc. is embarking on a strategic review to examine a range of options, including an outright sale, now that Ottawa has lifted foreign investment restrictions for small telecom companies.
The Thornhill, Ont.-based company, which provides wireless broadband, data and voice services to small and medium-sized businesses in 46 Canadian markets, said Wednesday its board of directors has formed a special committee to shepherd the review process.
It has also hired U.S. investment bank Houlihan Lokey and Canadian-based Canaccord Genuity as financial advisers – moves that whet the appetite of investors for more mergers-and-aquisition activity in the telecom sector.
U.S.-based Primus Telecommunications Group Inc. announced a deal in August to take full control of Canadian-based Globility Communications Corp. Meanwhile, Manitoba Telecom Services Inc. has hired investment bankers in Canada and the United States to drum up interest in its MTS Allstream division, according to sources.
There is also speculation that Globalive Wireless Management Corp., which operates under the Wind Mobile name, could also be in play now that its financial backer, Amsterdam-based VimpelCom Ltd., faces no foreign-investment obstacle to launch a formal takeover. (There are also suggestions that Globalive could pursue a potential merger with Mobilicity or a regional cable company like Quebecor's Vidéotron Ltée.)
TeraGo's announcement, however, has been widely anticipated for months. As a result, the company's shares increased by 9.5 per cent, or 95 cents, to close at $10.95 on the Toronto Stock Exchange – gains that give the company a market cap of roughly $123.9-million.
"There can be no assurance that the strategic review process will result in any change in the operation or ownership of the Company and TeraGo does not intend to make any further announcements with respect to its strategic review until such time as it deems appropriate," the company said.
In June, chief executive officer Bryan Boyd told The Globe and Mail that TeraGo would be open to considering a variety of strategic options, including a possible sale or joint venture, once new foreign investment rules took effect. The legislation, which allows for 100-per-cent foreign ownership of telcos with a market share of 10 per cent or less, received royal assent earlier this summer.
"As soon as these laws are changed, one of the very first things we will do is to increase our awareness in these other markets outside of Canada so that we can attract new investors and just raise the profile of the company. Steps beyond that – joint ventures, interest from foreign players in buying the company – we can't control these things, but these are all possibilities, for sure," Mr. Boyd said in an interview at the time.
Analysts have already suggested that U.S. companies like Towerstream Corp. and Airband Communications Inc. could be potential buyers, given that both have similar business models to TeraGo.
But Greg MacDonald, an analyst with Macquarie Capital Markets Canada Ltd., said TeraGo could also generate interest here at home. "Within Canada we suggest cablecos could be interested in owning or partnering with a company like TeraGo," he wrote in a note to clients.
Mr. MacDonald has long suggested that Rogers and Cogeco could be logical acquirers given that both have been eager to gain a bigger share of the small and medium-sized business market – a customer segment that is providing a new growth opportunity for cable companies.
In his note on Wednesday, Mr. MacDonald said that "precedent deals" such as Cogeco's acquisition of MTO Telecom or QuietTouch or Rogers's purchase of Atria could value TeraGo at $16 to $19 a share based on 2013 estimates.