Lightspeed Commerce latest Canadian tech company put up for sale

Lightspeed Commerce Inc. LSPD-T is officially up for sale, the latest in a series of Canadian tech companies to consider going private following a stock market slump after pandemic restrictions were lifted.

The board of the Montreal-based point-of-sale software vendor has hired U.S.-based investment bank JP Morgan Chase & Co. to run a strategic review of the business that includes a potential sale to a rival tech company or private equity fund, according to a source familiar with the situation.

Lightspeed is in the early stages of the strategic review and there are no assurances the company will be sold, the source said. The Globe and Mail agreed not to name the source because they are not permitted to speak for the company. Reuters first reported that Lightspeed is up for sale.

On Wednesday, Lightspeed’s Toronto Stock Exchange-listed shares jumped and closed up by 13 per cent on news of a possible takeover. The company’s market capitalization is $3.2-billion. Lightspeed sells transaction software to retailers, restaurants, golf courses and hotels.

The company is in the midst of a strategic shift, after the board replaced chief executive officer Jean Paul Chauvet in February with founder and former chief executive officer Dax Dasilva. After retaking control, Mr. Dasilva moved to increase Lightspeed’s sales at a sharper pace while still maintaining a commitment to improve its bottom line.

Despite posting higher revenue in recent years amid rising customer transactions, Lightspeed has failed to reach profitability, although it has lived up to its promises to achieve adjusted operating profitability, a non-GAAP measure that is followed more closely by analysts.

Lightspeed was founded in 2005 and serves customers at 163,000 locations in more than 100 countries. The company has been shifting its business to serve larger customers with US$500,000 or more in annual revenues, which has resulted in Lightspeed shedding many smaller companies – and the subscription revenue it earned from them for using its software.

But the company believes it can grow its business overall by serving the more complex needs of larger clients. The pace and progress of that shift and Lightspeed’s commitment to pursuing higher growth has spooked investors at times in recent years and prompted Mr. Chauvet’s exit early this year.

Shareholders in general have been frustrated with the drop in valuations for software companies that have tried to juggle the pursuit of profitability without sacrificing too much of the revenue growth that had driven investor excitement before that. With private equity firms willing to pay higher valuations than public market shareholders, the temptation has been strong for listed companies to sell out.

Kinaxis Inc. KXS-T, an Ottawa-based software company that went public a decade ago, has faced public calls in recent weeks from two institutional investors to put itself up for sale. The activist fund managers targeted Kinaxis after its stock fell due to concerns about slowing growth and the sudden departure of chief executive officer John Sicard, announced recently. Kinaxis has a $4.4-billion market capitalization.

In March, Mr. Dasilva said in an interview with The Globe that Lightspeed’s board was considering offers to take the company private, after peers such as Nuvei Corp. announced takeovers. But he indicated his preference was for Lightspeed to stay the course as a public company.

“I think the return of Dax to the role of CEO was a clear sign that this is a board and a CEO that are very focused on ultimately unlocking shareholder value,” said analyst Thanos Moschopoulos at BMO Capital Markets in an interview on Wednesday.

“We’ve seen this play out before. It’s a cyclical dynamic,” said Mr. Moschopoulos. “We fluctuate between markets that are conducive to IPOs and markets that are more challenging, and when valuations are depressed, that in turn leads to privatization behaviour, prompting companies to put themselves up for sale.”

Lightspeed went public in 2019 by selling shares for $16 each and went on an acquisition spree in the following two years. The stock price hit $150 a share in 2021, when investors put premium valuations on digital businesses, then slumped below $20 in recent months. On Wednesday, Lightspeed stock closed at $21.15 on the TSX after the Reuters story broke. The company also lists its shares on the New York Stock Exchange.

Potential bidders for Lightspeed could include established U.S. rivals such as Global Payments Inc. and NCR Corp., which could expand its software product lines by acquiring the Canadian company, and private equity funds willing to back Mr. Dasilva’s turnaround strategy, said analyst Richard Tse at National Bank Financial Markets. “A potentially wide range of prospects could look at this,” he said.

If Lightspeed does get taken over, it will be the latest in a string of Canadian tech companies that raised money over the past five years only to go private when the sector fell out of favour. Nine of the 20 tech companies to launch initial public offerings on the Toronto Stock Exchange during the COVID-19-linked boom have already gone private.

In April, U.S. private equity firm Advent International Corp. acquired Montreal-based online payment company Nuvei NVEI-T an US$6.3-billion transaction supported by Nuvei founder Phil Fayer and two major institutional shareholders, Novacap and Caisse de dépôt et placement du Québec.

TSX-listed tech companies Absolute Software Corp., mdf commerce MDF-T and TrueContext Corp. TCXT-X have also recently agreed to buyouts. This wave of privatizations of Canadian tech companies in the past year followed a crash in valuations in late 2021. Lightspeed stock is down more than 85 per cent from its high that year.

Lightspeed’s largest shareholder is the Montreal-based Caisse, with a 16-per-cent stake. Boston-based fund manager Fidelity Investments owns 11 per cent and Mr. Dasilva is also a major shareholder, but he owns less than 10 per cent of the company.