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“The hyper-growth of Canadian technology companies may be a thing of the past”

TORONTO, ONTARIO, Sep 25, 2008 MARKET WIRE via COMTEX
Today’s announcement of the 2008 Deloitte Technology Fast 50™ winners highlights a dramatic slowdown in growth rates after a decade of remarkable expansion.

The Deloitte Technology Fast 50™, the country’s leading technology awards, ranks companies based on their five year revenue growth rates. Other categories include: Leadership; Companies-to-Watch and the Technology Green 15™.

Markham, Ontario-based Nightingale Informatix Corporation, a healthcare service and software company, took the top spot with a 23,078% five year revenue growth. This is down sharply from last year’s winner, Sandvine who topped the list with a blistering 42,120% five-year revenue growth rate.

“The hyper-growth of Canadian technology companies may be a thing of the past,” warns John Ruffolo, National Leader, Technology, Media & Telecommunications Industry Group, Deloitte.

Only a third (36%) of companies who made the list are VC financed and almost as many (32%) are backed by debt as by equity.

“In fact, our annual survey of Deloitte Technology Fast 50™ CEOs found that tech executives are predicting little growth in this sector, not only because of looming concerns about an economic downturn in Canada or the strong Canadian dollar, but also because of the weakness in Canada’s venture capital industry and a tight credit market.

This should be a rallying cry to find immediate solutions that will help this industry – often referred to as the industry critical to the success of Canada’s economy into the future,” explained Ruffolo.

Average growth rate down 1,276% compared to last year

Combined, this year’s winning companies posted an average growth rate of 2,457%, down 1,276% from last year’s average growth rate of 3,732%.

“These are still great companies with an optimistic view of the future, but they have been hampered recently due to a lack of venture capital (VC) funding and a slowing worldwide economy,” explains Duncan Stewart, Director of Deloitte Canada Research.

“The private equity market has almost vanished and the IPO window is practically closed. Canada is home to the brightest minds in the business, but without financial assistance, we are going to lose out to more aggressive countries who know the true value of tech sector growth.”

Right behind top-ranked Nightingale Informatix Corporation, is Toronto-based PlateSpin (22,390%) a developer of data centre automation software, placing second two years in a row. Ottawa-based Level Platforms, which develops remote monitoring and management software ranked third (19,890%). Rounding out the top five are Toronto-based MyThum Interactive (see Red Canary profile) a mobile interactive media technology-provider (6,840% for fourth place two years running), and Vision Critical (5,298%), a Vancouver-based software company that develops interactive research.

U.S. and global economic weakness taking a toll

71% of CEOs surveyed said that tight credit markets are affecting their growth plans and 46% said they are changing or reviewing their strategies as a result of a downturn in the global economy.

Interestingly, Deloitte Technology Fast 50™ CEOs remain optimistic and confident about their own companies but 57% of them see the broader industry slowing down.

Changing trends in financing

Only a third (36%) of companies who made the list are VC financed and almost as many (32%) are backed by debt as by equity. This is a surprising trend when compared to 10 years ago when technology entrepreneurs could only rely on VCs to fund them.

Due to the lack of venture capital today, more companies are accessing the debt market and using their own cash to grow. Furthermore, even when they do receive VC funding, they are not getting it from Canada, but from the U.S. and Europe.

This contrasts dramatically from 1998 when only 3% of VC funding originated from foreign sources.

Rise in commodity/energy prices providing new opportunities

Most Deloitte Technology Fast 50™ companies are not being negatively affected by a rise in commodity/energy prices, but 42% are taking advantage of the trend to develop and sell new technologies that are energy efficient.
Over a third (38%) of CEOs surveyed said they had created new opportunities or growth markets for their businesses due to rising energy and commodity prices.

GreenTech and CleanTech on the rise

A continuing bright spot in the Deloitte Technology Fast 50™ program is the increased quality and size of Technology Green 15™ winners.

They have been able to attract venture capital and IPO attention. It appears as if any company that allows you to do more with less – conserve energy, produce more oil and gas, use coal more responsibly – will be the winners in the years to come.

However, while other industries are working on their environmental practices, technology companies themselves appear to be laggards in this area. Less than half (37%) are implementing energy conservation techniques and the use of environmentally friendly energy sources for their own companies, while 52% are implementing waste reduction measures.

Despite these figures, a full 92% say going green “is the right thing to do.”

The wireless sector continues to thrive

The market for wireless products, applications and services continues to move forward with great promise. 58% of tech executives see wireless applications, services and solutions becoming a larger part of their company’s business in future.

Of course, this is a sector where Canada is truly a leader through the efforts of companies like Research In Motion, which has made the Deloitte Technology Fast 50™ ranking every year for 11 years running – earning it the exclusive “Hall of Fame” honour.

Federal government getting too involved in the wrong ways

When asked if the current Canadian tax and regulatory environment is a barrier to their ability to remain competitive and grow, 54% said “yes”. In addition, 17% said the federal government keeps getting involved in the industry, changing the rules of the game and restricting growth with too many regulations.

The same number cited a lack of federal and provincial government harmonization. “Working together, government agencies could do more to help technology companies grow, raise capital, reduce their tax burden and help them expand into international markets,” explained Ruffolo.

Regional representation of Canada’s technology hotspots

While the Greater Toronto Area (GTA), Ottawa, and companies from Southwestern Ontario combine to produce more than half of Deloitte Technology Fast 50™ winning companies (27), other regions also show strength.

The Greater Vancouver Area has seven, four hail from Alberta and Atlantic Canada has one winner. Quebec boasts 11 winners (up from 9 last year), likely due to a more favourable VC climate.

Ottawa has an almost even mix of both Deloitte Technology Fast 50 winners and Companies-to-Watch that could graduate to the Deloitte Technology Fast 50™ ranking in years to come

In fact, Quebec’s winners say they enjoyed more VC funding than those in any other province. It is also interesting to note that Ottawa has an almost even mix of both Deloitte Technology Fast 50 winners and Companies-to-Watch that could graduate to the Deloitte Technology Fast 50™ ranking in years to come.
While the Ottawa region has long been known for its established tech industry, it’s encouraging to see that innovation continues to thrive there.

Leadership Awards

Leadership Awards single out companies that are the elite members of the Canadian technology industry, whose ability to create a distinct competitive advantage in a high-growth market allows them to dominate their sector and quickly join the ranks of other Canadian global leaders.

This year’s four Leadership Awards recipients are: PlateSpin (recently acquired by Novell), a developer of data center management solutions; RuggedCom Inc., which makes rugged communications equipment; Evertz Technologies Limited, a developer of HDTV and IPTV equipment; and Westport Innovations Inc., an engine developer and manufacturer.

Companies-to-Watch Awards

Based on the same criteria as the Deloitte Technology Fast 50™, the Companies-to-Watch (CTW) Awards honour early-stage Canadian technology companies in business less than five years, with the potential to be future Deloitte Technology Fast 50™ candidates.

In this category, lack of financing is once again a critical factor. In the past, CTW have succeeded by developing solutions based on existing technologies but better, faster and more efficient.

With the 2008 CTW Award-winners, the reverse is true. The majority are creating businesses in spaces that didn’t even exist a year or two ago and are creating truly cutting-edge new markets.

Ten companies are recognized as CTW this year: Blueprint, Embotics Corporation, Enablence Technologies Inc., Geminare Incorporated, In Motion Technology, OmniGlobe Networks, Paymentus Corporation, Planeteye, Sidense, and Storage Appliance.

Impressively, one CTW winner from 2007, Brandimensions Inc., rose to the upper echelon of the 2008 Deloitte Technology Fast 50™, ranking ninth this year.

Deloitte Technology Green 15™ Awards

These awards recognize Canada’s leading GreenTech companies that promote a more efficient use and re-use of the earth’s resources in industrial production and consumption.

In doing so, they use new, innovative technologies to create products and services that compete with existing products and services on price and performance while reducing our impact on the environment.

The 15 winners are: 6N Silicon Inc., Alter NRG, Aqua-Pure Ventures Inc., ARISE, Distech Controls, EnviroTower, GEEP Inc., Ground Effects, Hemisphere GPS, ProSep Inc., Questair, Sempa Power Systems, Sustainable Energy Technologies, Timminco, and Westport Innovations Inc. Of these companies, 33% are involved in the energy industry, 20% in remediation and 20% in smart building technologies with almost half based in Western Canada. In addition, there are more public Technology Green 15™ companies than private as the investment community is more accepting of early stage GreenTech companies than other types of technology firms.

About the Deloitte Technology Fast 50™

The Deloitte Technology Fast 50™ program is Canada’s pre-eminent technology awards program.

Celebrating business growth, innovation and entrepreneurship, the program features four distinct categories including the Deloitte Technology Fast 50™ Ranking, Companies-to-Watch Awards (early-stage Canadian tech companies in business less than five years, with the potential to be a future Deloitte Technology Fast 50™ candidate,) Leadership Awards (companies that demonstrate technological leadership in four industry subcategories:

hardware/semiconductor, software, telecommunications and emerging technologies) and the Deloitte Technology Green 15™ Awards (Canada’s leading GreenTech companies that promote a more efficient use and re-use of the earth’s resources in industrial production and consumption.)

Program sponsors include Deloitte, Gowlings, GrowthWorks, RBC Capital Markets, Wellington Financial, Stonewood Group, CATAAlliance and IGLOO. For further information, visit www.fast50.ca.