Every Canadian investor is now considering the potential impact that a meaningful recession will have on various sectors of the economy. The technology sector is particularly interesting, given the long-term growth potential of many companies. Weighing the near-term impacts of the COVID-19 pandemic against broader long-term growth trends make many such companies difficult to value today.
One such company is Canadian technology aggregator Open Text Corp. (TSX:OTEX). This tech company is a growth-by-acquisition story, having consolidated a wide range of businesses with unique niche technologies in the IT management and software solutions sector. Open Text has a track record of acquiring these businesses at relatively decent price compared to their growth potential. In addition, Open Text has been able to integrate said businesses into the company’s integrated portfolio. These successful strategies have led to Open Text having a relatively high valuation relative to its peers.
With valuations dropping across the board, companies like Open Text may have a unique opportunity to make acquisitions at even better valuations today. This may allow the company to potentially grow its way out of this crisis, should debt and equity markets support such activity.
Open Text has deployed over $6 billion over the past five years in acquisitions. Right now, one of the key questions many investors (like myself) have with acquisition-focused growth plays like Open Text is whether or not the company will be able to execute on its large and growing acquisition pipeline, a key long-term driver for OTEX shareholders.
Invest wisely, my friends.
