In Todays National Post David Reevely: Ontario sends cash to Waterloo company sitting on a cash mountain
The Ontario government is giving $15 million to a Waterloo company that intends to give that much to its own shareholders by the middle of next year.
The money is the latest squirt of cash dispensed by Premier Kathleen Wynne’s “jobs and prosperity fund,” which is supposed to subsidize good jobs in growing industries. In this case, it’s going to Sandvine Inc., which sells systems to companies that run computer networks to help them monitor and control data traffic. This is big for Internet providers; Sandvine’s many customers include Comcast and Virgin Mobile.
“Sandvine is a true Ontario success story, and our government is pleased to support the next phase of its growth, which will help create high-quality jobs,” Wynne said, in personally making the announcement of the $15-million deal. “By partnering with companies like Sandvine, we are helping to boost Ontario’s dynamic ICT (information and communications technology) sector and positioning the province for growth now and for years to come.”
Sandvine is doing really well. It made $41 million in profit last year on $123 million in revenue, a huge margin. According to its public documents, at the end of last year it was sitting on more than $140 million in cash.
In fact, Sandvine has so much cash, it doesn’t know what to do with it all. It’s run a share-buyback program for years, using company money to pull its own stock out of the market and drive up the price. Last January, the company announced it was starting to offer a dividend, cash from the company’s treasury going to its shareholders totalling $10 million a year.
Sandvine intends to keep growing but it assures investors that things are going so well that it can totally do both that and pay the dividend. It bought a Dutch company with related technology last August for $10 million and just announced it’s picked up one in Switzerland for an undisclosed amount.
Sandvine’s cashflow “can still support all growth initiatives,” the company told investors in January. Those initiatives include the thing we’re helping pay for: a project to move the network-control services Sandvine offers into “the cloud,” making them much easier to sell, deploy, manage and change. The company expects to hire 75 people for it, which is great.
But, OK, why do they need the money?
Sandvine spokesman Rick Wadsworth says the company has trouble convincing itself to hire people in Ontario.
“Sandvine, like any global high-tech company, has to choose the best regions to do our development work,” he said Friday by email. “Our natural predisposition is to do that work in Ontario, but there are other parts of the world where Sandvine currently operates that also have qualified candidates and much lower cost. The Jobs and Prosperity Fund took a difficult decision about where to locate future jobs and helped gap some of the cost difference, but not all of it.”
The provincial government agrees with that take. “If the province was not able to support Sandvine’s growth in Ontario, it’s highly likely that further expansion would have taken place at Sandvine’s India-based facilities,” says Jessica Hume, a spokesperson for Economic Development Minister Brad Duguid. “We are securing Sandvine’s presence in Ontario and providing support for the company’s continued economic contribution to the province.”
Indeed, the company’s “robust financial health” is what makes it such a good recipient, Hume says. We know they’ll be able to do what they say they’ll do.
Also, this money from the province is unrelated to the dividend money, Wadsworth says: “The province’s contribution to the project is directly linked to Sandvine’s spending on eligible costs incurred on this project. It is completely separate from the funding source used for the payment of a dividend.”
The money you use to pay the rent is completely separate from the money you use for groceries, right? You make the rent money on Mondays and Tuesdays, and the grocery money on Wednesdays.
The Sandvine deal, like so many of the other jobs-and-prosperity subsidies before it — for Ubisoft, Cisco, OpenText, Ford, Honda and so on — takes a winning company and plies it with more money. We will probably have to keep plying, too. Sandvine got a $25-million boost from Ontario in 2010 and here we are again.
This is the best possible outcome, the subsidy system working up to its full potential. Hooray for success.
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