TeraGo eager to seek U.S. investors

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TeraGo Inc. is eager to attract more U.S. investors and would be open to a variety of strategic options, including a possible sale or joint venture, once new foreign investment rules for small Canadian telecoms take effect. The Thornhill, Ont.-based company, which provides small and medium-sized businesses in 46 Canadian markets with wireless broadband, data and voice services, is currently at the limit of how much foreign money it can have invested in its equity. As a result, it is keenly awaiting royal assent for the federal budget bill, which contains measures that allow for 100-per-cent foreign ownership of telcos with a market share of 10 per cent or less. Current law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent.

Chief executive officer Bryan Boyd says TeraGo is in growth mode and thirsting for new sources of capital to invest in infrastructure so it can bring new services to its expanding customer base.

TeraGo provides services to business customers in about 46 markets across Canada, including Vancouver, Calgary, Edmonton, Winnipeg, Toronto and Montreal.

"The change in the foreign ownership rules – that's a big deal. That's going to allow companies like TeraGo to lower its cost of capital and bring new investors in," Mr. Boyd said in an interview.

"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."

TeraGo, which has a market cap of $78.2-million and recorded annual revenues of $44.9-million in 2011, will likely hold investor "road shows" in the United States once the new foreign investment rules are in place, before targeting other international markets. There is speculation that U.S. company Towerstream Corp., could be a potential buyer.

Middletown, R.I.-based Towerstream, which is listed on the Nasdaq, has a similar business model to TeraGo. It uses fourth-generation technology to provide high-speed Internet access to business in 12 U.S. markets, including Los Angeles, New York and Boston.

"They are very similar companies," said Dvai Ghose, an analyst with Canaccord Genuity. "It is arguable if they (Towerstream) expand to Canada, they (will) get some greater scale and efficiencies."

During Friday trading on the Toronto Stock Exchange, TeraGo's shares closed unchanged at $10.20.