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Archive for December 7th, 2010

Despite layoffs, Protus acquisition ‘breaks a log-jam’ in Ottawa: insider

Posted by sweens on December 7, 2010

By Elizabeth Howell

After years of undisclosed acquisitions of Ottawa firms, the high-profile, US$213-million Protus IP Solutions Inc. acquisition on Monday could prove the turning point for the local tech industry, according to one insider.

An undisclosed number of employees will be severed from Ottawa’s Protus IP Solutions Inc. following its acquisition by U.S.-based j2 Global Communications, according to Protus’s CEO.

However, the managing partner of Perry Martel International said the layoffs, though never pleasant, came at an opportune time for the affected employees.

“It’s the best time of the year to be laid off because managers are in their office right now doing Christmas period planning budgets for the new year, and with new budgets come new hires,” David Perry pointed out.

But taking a step back from the company itself, Mr. Perry said j2’s interest in the Ottawa firm “breaks a log-jam” for a city known for low-profile takeovers with acquisition sums never revealed.

It proves the key for local companies to become acquisition-worthy, he said, is effective marketing outside of Ottawa and Canada.

“The (founders) – I’m going to get in trouble for this,” he quipped, “are two fairly dull engineers. They shun the limelight.

“They just do the work, and fax is considered a dull business. All these Internet businesses (in Ottawa) that have come and gone, and crashed and burned, have been the darlings of the business industry. And they got nothing.” 

Chief executive Joseph Nour, though “pleased” by the takeover, said the layoffs were a tough choice, according to an e-mail to employees acquired by OBJ.

“The plan is to continue to aggressively market and sell the brands key to Protus’ historical success and to maintain operations in Ottawa,” Mr. Nour wrote.

“There will, however, be realigning of resources in order to optimize synergies, resulting in an immediate reduction of our overall headcount.

“The decision to eliminate some positions was extremely difficult and was not taken lightly. These changes are important for future achievements and the ability to continue to drive profitable growth.”

Protus had 260 workers before the acquisition, according to OBJ files. Company officials did not immediately respond to OBJ requests for comment.

Steve Adams will now lead the Ottawa office, becoming Protus’ general manager and vice-president and directly reporting to j2 CEO Hemi Zucker.

j2 made the purchase out of cash on hand and expects $15 million in related expenses in the next nine months, with between $5 million to $11 million charged in j2’s current fiscal quarter.

The two companies were in court in 2008 regarding Protus’ opposition of  j2’s trademark application for the word ‘eFax’ in the United Kingdom.

Earlier this year, that patent was revoked

“The European Patent Office held that, in the face of the prior art in the field, the patent lacked any ‘inventive step’ because a ‘person skilled in the art’ could achieve the claims of the patent by using ‘well-established’ search techniques,” Protus said in a statement at the time.

Protus remained strong through the recession and was 10th on OBJ‘s list of fastest-growing companies in 2009.

It provides software-as-a-service communications for business under three main products: MyFax, Campaigner and My1Voice.

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Protus takeover was a safe alternative to IPO: analysts

Posted by sweens on December 7, 2010

By Elizabeth Howell

Protus IP Solutions Inc.’s US$213-million takeover yesterday by its court rival, j2 Global Communications, was the best outcome possible for the company given ongoing litigation, an analyst says.

The acquisition represents the second $200-million-plus deal in Ottawa in the past year. The other one concerned blood-diagnostics firm Epocal Inc., which in January announced Inverness would acquire all of its issued and outstanding equity securities for US$255 million.

Protus and rival j2 had been engaged in a multi-year court battle concerning the validity of j2’s claim to trademark the word “eFax” in the United Kingdom, which flared up again in April when the patent was revoked.

With Protus reaching 500,000 subscribers this year for its fax business and pegged as one of OBJ’s fastest-growing companies during the recession, its founders were eager to take the company public, says David Wismer, managing director and head of the technology investment banking group at BMO Capital Markets.

However, chief executive Joseph Nour and co-founder Simon Nehme were advised not to do an IPO given the uncertainty of the court battle, said Mr. Wismer, who said he was familiar with the circumstances given his organization was one of the financing parties.

 “That was one of the big concerns going that route: the litigation was going to be a challenge,” Mr. Wismer said in an OBJ interview.

“The sales process made more sense for the companies, to eliminate the litigation for both of them.”

At Thomson Reuters, analysts there tracked 29 disclosed deals nationwide in 2010, up from 25 in 2009.

Ottawa’s two prominent deals this year, among the three largest disclosed across Canada, will be an “eye-catching” opportunity for investors, said Kirk Falconer, Thomson’s director of research in private equity.

“There are still high-growth companies in Ottawa,” he noted of the Protus and Epocal deals. “There are experienced technology entrepreneurs and angel investors.

“It’s a reminder that companies like Protus exist, and there will be more like them.”

j2 and Protus took the lion’s share of the Internet fax market, with Protus’ main products being MyFax, Campaigner and My1Voice.

But given j2’s 11 million subscribers to Protus’ 500,000, industry observers pointed out a takeover was the most likely option for the burgeoning Ottawa firm to grow in such a small field of competition.

Ottawa firm LaBarge Weinstein represented Protus in court and served as its general counsel since 2000.

Partner Michael Dunleavy said he had not heard the IPO rumour, but pointed out that meeting in the courtroom repeatedly gave the two firms natural contacts to begin takeover discussions.

Both firms had a “mutual agreement” that the acquisition would benefit everyone, including Protus’ 260 employees – who all, “right down to the janitor”, had money invested in the firm.

He said it would help soften the blow for the employees who will be let go in the wake of the takeover, a move announced in a staff e-mail Mr. Nour sent yesterday.

“It’s a solid business in and of itself, with $7 million in revenues and positive earnings,” Mr. Dunleavy said.

“That business was permitted to grow by good stewards – the venture capitalists and the management team.

” BEST Funds, BMO Capital Corporation, Celtic House Venture Partners, Covington Capital Corporation, Edgestone Venture Fund and Mosaic Venture Partners all took part in the takeover.

“You have all-Canadian VCs in there who, in some cases, have been in there for 11 years,” Mr. Dunleavy said. “That’s a tremendous testimony to their patience, waiting for value to crystallize.

“As far as what it means in the Ottawa landscape, it’s a testimony to what patience will accomplish. There is a perception that venture capitalists are looking for liquidity as early as possible, and that was clearly not the case.”

For greater Ottawa, the acquisition – though it technically headquarters the company outside of the region – will bring value to the area in other ways, says OCRI chief executive Claude Haw.

“It frees up the VCs, and they badly need that to happen. It frees up some people that now have experience to go off and do it again,” he said.

The founders, Mr. Haw added, will have the flexibility to take risks in a new company, especially with “a few million dollars in their pocket.”

“The reality is, very few people leave the region despite the doom and gloom that some espouse. People who have built a business here like to stay in Ottawa, and the lion’s share of people who end up in a sale like this stay here and start again.”

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