A $54 million deal between a Montreal-based systems integrator and a Toronto-based software development company makes good business sense, according to one analyst.
IT solutions provider Cognicase Inc. acquired Toronto’s Ezenet Corp. in a deal announced Monday afternoon. Cognicase, which specializes in the development and integration of transactional solutions, and Ezenet, which provides wealth management transaction processing and Web based utilities for financial institutions, complement each other well, said Gary Guthro, Ezenet’s chief financial officer.
“This is going to provide us with a much larger IT infrastructure to do installations on a larger scale,” he said from his Toronto office.
“One of the problems that Ezenet had is, because we are small company and you want to deal with larger banks, there is some hesitancy in terms of doing an ASP model. The size of Cognicase will solve that.”
Michelle Courchesne, a Cognicase spokesperson in Montreal, said the benefit goes both ways.
“We have a vertical market that we target, which is the financial sector,” Courchesne said. “Ezenet has a software it is selling to its clients in this sector and we feel this software will be a good complement to the e-solutions we are offering to our clients.”
Jason Bremner, senior analyst for outsourcing services at Toronto-based IDC Canada, said Cognicase and Ezenet are a “good match.”
“It’s going to give them some more presence in Toronto,” he said. “Ezenet has a pretty unique offering in terms of its application service provider business for wealth management. That’s going to give Cognicase more presence in an area it wants to focus on – financial services. Ezenet has positioned itself as an ASP; Cognicase is platforms for ASP. It’s a good blend and it makes sense.”
This transaction was approved by Cognicase’s board of directors, but is still subject to the approval of two thirds of Ezenet shareholders. If approved, the amalgamation is expected to close by the end of September 2001. The transaction is comprised of Cognicase shares and a cash option to Ezenet shareholders up to $20 million.
“To have a deal, you need a win-win situation,” Cognicase’s Courchesne said. “It gives us new possibilities and a strong position in Toronto.”
She said Cognicase has been doing outsourcing business in Toronto for the last four years. With the acquisition of Ezenet, they will now have a Toronto data centre, bringing them up to a staff of 500 people in Toronto and 350 in Ottawa. She added that this deal makes even more expansion likely for the future.
“Normally when you do deals like that, you hope to increase your revenue,” she said. “You are doing that because you want to do big business, so we hope we will be able to go further.”
Guthro said he couldn’t guarantee anything, but added he doesn’t expect any restructuring in the company.
“They want to build a mass in Toronto, like they have in Montreal,” he said. “This provides better exponential growth potential of the company.”
The agreement provides for a $2.25 million break fee in the event that the board of directors withdraws or changes its endorsement of the transaction.