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Backbone Magazine and the Branham Group deliver the Branham300, the authoritative roundup of Canada's top-performing tech companies
By Jessica Collins and Wayne Gudbranson
2007 was a record-setting year for Canadian Information and Communication Technology companies, as successful mergers and acquisitions dominated the news. While the big fish in the pond have not yet had their fill of the little fish, they have moved onto consuming one another, as with the acquisition of Hummingbird by Open Text. This trend is already evident in 2008, as Telus prepares for the final stages of the acquisition of Emergis. Meanwhile, Constellation Software finalized a remarkable 11 acquisitions in fiscal 2007.
For the first time in 30 years the Canadian dollar closed above the American dollar, which had a significant effect on Canadian industry. Peaking on Nov. 7, 2007, the Canadian dollar sold at a remarkable $1.10 against the U.S. dollar, well above parity. As a result, the cost of exports to the United States increased dramatically in a short period of time, adversely affecting the Canadian economy. The ICT sector in Canada surged on despite this setback. Industry Canada reports that both the services and manufacturing sub-sectors of the ICT industry have been outperforming the corresponding overall Canadian services and manufacturing industries since 2002 and 2005 respectively.
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The Branham300 rankings saw a great deal of change in 2007, resulting from increased merger and acquisition activity among Canada’s biggest players and IPOs from a number of new participants. In fiscal 2007, acquisition activity resulted in the loss of four major players listed among the Top 30 on the 2007 Top 250. In total, 21 companies from last year’s list with combined revenues of $4.57 billion in fiscal 2006 were either acquired or ceased relative operations. This year’s listing comprises 43.6 per cent private companies and 56.4 per cent public companies with combined total revenues of $64.4 billion, a 1.55 per cent and $1 billion decrease from last year’s total, mainly attributed to acquisition and consolidation activity. |
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Top 250
Canadian
Tech Companies
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Geographic distribution of results
The geographic distribution of companies appearing in the Top 250 remained relatively static in 2007, compared to the figures reported last year. The representation of companies headquartered in Ontario on the Top 250 has decreased slightly to 53.6 per cent from 55.6 per cent last year. This change could be attributed to the acquisition of some large Ontario companies (which were previously included in the listing) by foreignowned companies, such as the acquisition of ATI Technologies by Advanced Micro Devices (AMD). In other cases, however, the acquired companies were purchased by Ontario peers. There is very little change in the composition of the Atlantic Provinces, although Newfoundland reappears on the listing this year with 0.8 per cent of companies based there. The figure for Quebec, a slight decrease of 0.4 per cent from last year, and small increases in representation in Alberta and British Columbia (0.4 per cent each), remain on par with last year’s results.
In accordance with the geographic distribution of companies, Ontario firms accumulated 57.7 per cent of total revenues earned by the Top 250 companies. Quebec, B.C. and Alberta companies account for 22.01, 13.12 and 3.28 per cent, respectively. These figures are proportionately higher than last year. In contrast, provincial year-over-year revenue growth is dramatically different from previous results.
Performance by category
The Top 250 consists of companies from four categories: 96 in the Software category, 67 within IT Professional Services, 54 in IT Hardware and Infrastructure, and 33 in xSP. Companies that participate in the Branham300 are also free to apply to any of the following sub-categories, as applicable: IT Security, Wireless Solutions and, new this year to the Branham300, Healthcare IT companies. The Top 10 companies in the sub-categories are also ranked based on fiscal year-end revenues.
Industry Canada divides the Canadian ICT sector into two sub-classifications by the North American Industry Classification System (NAICS): ICT services and ICT manufacturing. According to its statistics, the manufacturing sub-sector has experienced 18 per cent growth in GDP since 2005, leading to the third quarter of 2007, where it fell by just 0.8 per cent. The IT Hardware and Infrastructure companies on the Top 250 generated the highest revenues of any Branham300 category at $27.72 billion, a year-over- year decrease of 14.9 per cent compared to last year’s list. This decline can largely be attributed to the loss of companies previously listed, which were either acquired or changed their business focus. The Top 25 Hardware companies in this year’s listing showed combined growth of 2.15 per cent.
The IT Professional Services grouping brought in $8.5 billion in combined revenues, exhibiting the highest year-over-year growth of all Branham300 categories at 14.24 per cent. The highest revenue-generating Branham300 category, of those classified in Canada’s ICT services sub-sector as defined by Industry Canada, is the xSP category, with $23.91 billion in combined revenues, a 12.59 per cent growth year over year.
Top performers
The composition of this year’s Top 10 companies appearing in the Top 250 list is similar to last year’s, with just two new companies. Nortel, Celestica and BCE take the top three spots respectively for the fourth consecutive year, while Nortel celebrates its fifth consecutive year as the Canadian firm generating the most revenue. However, the race was significantly closer this year, with Nortel and Celestica reporting revenue decreases of 4.58 and 9.1 per cent over 2006, respectively.
Significant trends
Merger and acquisition activity was high in 2007, a trend expected to continue into 2008. The financial impact of much of the activity in fiscal 2007 will be depicted next year, once the fruits of these acquisitions are realized. Cognos, in the number 12 position, is to be acquired by IBM in the first quarter of 2008. Notably, this will be the last year of inclusion for DataMirror, also acquired by IBM on Aug. 31, 2007.
In total, 16 companies from last year’s Top 250 were acquired in fiscal 2007. Industry peers in the pure-play software sector are consuming one another, while major players seek to expand their offerings through merger and acquisition activity.
A number of trends observed in 2006 continued into 2007, such as adaptive security, software as a service (SaaS) and Unified Messaging and Communications. In addition, some new trends emerged in 2007 that are expected to have an impact in 2008. Green IT is a going concern, as firms strive to limit the environmental impact of their operations. As consumers and corporations alike seek timely and immediate information, social networking and RSS feeds, as well as wikis and all-in-one devices such as Apple’s iPhone will become increasingly available and adopted by households and corporations. As such, IT security needs have shifted to mitigate the privacy risks associated with the portability and accessibility of corporate IT and personal IT.
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Top 25
Multinational Companies
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Multinational companies are foreign-owned with operations in Canada. Their revenues, for the purpose of this listing, are comprised of domestic and/or export revenue generated strictly by the Canadian entity. The Multinationals are acknowledged in the Branham300 for their significant contributions to innovation and to the Canadian workforce and economy.
It is important to note, when reviewing the revenue figures reported here, that the foreign currency exchange rates used when converting U.S. dollars and Euros to Canadian dollars, with the exceptional performance of Canadian currency in 2007, tend to result in a lower figure than in previous years, despite year-over-year growth realized by many firms. Microsoft, for example, exhibited 15 per cent growth over the 12-month period ending June 30, 2007, although the figure reported is lower than that listed for 2006 due to the lower rate of exchange. The best depiction of a company’s performance, given the rate of exchange, is the percentage change in revenue growth over the 12-month period ending 2007. To provide an accurate comparison, the same rate of exchange was used to report 2006 and 2007 figures. Siemens Canada is the only new company to the Top 25 Multinational listing this year, making its debut at number three with revenues of $2.3 billion, a 28 per cent increase in revenue from 2006. Siemens, established in Canada in 1912, provides ICT consulting services from integration to support, with a focus on hardware development for the healthcare sector.
Apple Canada, jumping one spot to number seven, produced estimated revenues of $1.08 billion, a year-over-year increase of 24 per cent. Apple has realized a gradual resurgence of its brand in Canada with the recent availability of the iPod, MacBook and the highly anticipated iPhone. On Oct. 30, 2007, Apple reported that in the first weekend of sales the Mac OS X version 10.5 Leopard sold more than two million copies. This breaks the record previously held by the Mac OS X Tiger.
Returning to the list in the number 25 spot is Keane, acquired in June 2007 by Caritor, specialists in software application and product development and other technology consulting services. The company will proceed under the Keane name, and with Caritor’s history and Keane’s brand success, is positioned to deliver solutions that will help clients improve performance through higher quality and efficiency.
Still thriving from the momentum of significant activity in 2006, when it launched a new Canadian Web site and opened a Montreal office, TEKsystems realized year-over-year revenue growth of 70 per cent, the highest of all companies on this list. In 2007, it acquired the commercial services division of Computer Horizons of Mountain Lake, N.J.
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Top 25
Up and Comers
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The Branham300 Top 25 Up and Comers list is composed of companies established within the past three years, no earlier than Jan. 1, 2004. These companies are not ranked; rather, they are showcased alphabetically as firms that show tremendous promise within Canada’s ICT industry.
These companies are creating innovative products and applications within diverse fields which range from Voice over IP and wireless application development, to services consulting and security optimization, among many other specialties.
This year’s list hosts companies headquartered across Canada, with eight per cent of companies located in Atlantic provinces, 16 per cent in Quebec, 44 per cent in Ontario and the remaining 32 per cent in B.C. This geographic composition is not significantly different from last year. Some of these firms have been recognized within their communities as local rising stars, where others have demonstrated accelerated user awareness and adoption.
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