Tuesday, November 3, 2009 9:34 AM
Guest-Tek showcases small cap frustrations
Andrew Willis
All the frustrations that come with buying small cap Canadian tech stocks are neatly illustratd in the plan to go private announced recently by Guest-tek Interactive Entertainment.
This hotel broadband network supplier went public back in 2004 by selling shares at $10.25 each, on the back of a story that featured 200 per cent-plus annual revenue growth and 100 per cent-plus profit growth. BMO Nesbitt Burns led the Guest-Tek GTK-T initial public offering, and the stock’s best day was its first day on the TSX.
Guest-Tek failed to sustain strong growth, and the $44.6-million IPO never attracted much os a following. A dreary but familiar trend developed: There was little buying and selling, and the stock price price started to slide. The cheaper Guest-Tek got, the less it appealed to institutions, which need to establish a meaningful stake in a company to make it worth following. This became a classic orphan stock, neglected and unloved.
Over the past year, Guest-Tek president Arnon Levy built his stake in the company by purchasing stock on the open market at far less than the IPO price. On Friday, Mr. Levy announced plans to fold the public market tent.
Mr. Levy offeried to purchase all the remaining outstanding shares for 50 cents each – twice the price this stock commanded prior to the bid. Guest-Tek shares touched lows of 10 cents in recent months. The takeover offer is worth $8-million.
In justifying the 50 cent bid, Guest-Tek said in a press release: “Currently, less than 30 per cent of the common shares are widely held by the public and are thinly traded on the TSX.”
A special committee of Guest-Tek shareholders received a fairness opinion from a Calgary accounting firm named Meyers Norris Penny LLP that valued the stock at between 49 cents and 52 cents each.
It’s a disappointing ending to what seemed a promising tech story, and an all-too-common story for small cap plays on domestic public markets.
