MONTREAL — Lightspeed’s recent earnings call was a customary recitation of positive spin delivered by executives of the Montreal-based company. Revenues were up 24 per cent in its most recent quarter, losses were at their lowest in over two years and efficiencies wrung from corralling recent acquisitions—Lightspeed announced it was laying off 10 per cent of its workforce in January—have “strengthened our foundations for future growth,” as CEO Jean Paul Chauvet put it.

There was another tidy bit of good news that went unsaid during the hour-long corporate kibitz. The point-of-service company can now count itself a member of a rarefied circle of firms whose continued existence in the province is a source of pride, with all the protections and benefits that status implies. In exchange for keeping its corporative perch in Old Montreal—it’s literally a condition of investment—the firm is virtually guaranteed further support in addition to the hundreds of millions already invested by various instruments of the Quebec state should things ever go sideways. Lightspeed, you might say, has become too big to fail.

Consider the extent to which Quebec has the firm’s back. In July, the province’s economy and innovation ministry reserved $49 million to buy up Lightspeed shares. Executed in the dog days of summer, the trade made nary a ripple. The government neglected to announce the purchase, and Lightspeed didn’t make any mention of it in its subsequent second quarter earnings call. (No one from Lightspeed returned my requests for comment). In all likelihood, the transaction would have gone unnoticed had Le Journal de Montréal not unearthed the news in December. Even then, it didn’t seem to make much sense. Forty-nine million sounds like a lot, and it is, but it’s water gun-tier money considering Lightspeed’s market cap, which was hovering around US$3 billion at the time. 

But the investment was crucial in ensuring Lightspeed stays put in Quebec for years to come. “The intention of the $49 million was to make sure the companies that we target can have a Quebec ownership block,” the province’s economy and innovation minister, Pierre Fitzgibbon, told me recently. The goal, according to Fitzgibbon, was to build up a 30 per cent ownership stake in the company.

Here’s the math. The Caisse de dépôt owns 14.5 per cent of Lightspeed’s shares. Investissement Québec, the investment arm of the provincial government, owns between 4 and 5 per cent, according to Fitzgibbon. Lightspeed founder (and stubbornly proud Montrealer) Dax Dasilva owned 9.5 per cent of the company’s shares as of 2021. The $49 million, Fitzgibbon said, was the last brick in this made-in-Quebec bulwark against potential raiders from abroad. 

“A public company is always vulnerable to being bought. When the stock price drops there can be a hostile takeover, and a hostile takeover means the company could leave tomorrow. So to have a 30 per cent ‘bloc québécois’ we have more power,” Fitzgibbon told me.

Yet there are pitfalls galore to this government-backed stake. First, because of share dilution, the government (along with the Caisse, a governmental being that operates at arm’s length from the province) would have to keep buying shares to maintain that magical 30 per cent bulwark. The Caisse is a case in point. Its ownership percentage in the company decreased by more than 15 per cent between 2021 and 2022—not because it sold shares (it didn’t), but because the company issued more of them.

The Caisse, with more than 24 million shares, is the single largest stockholder in Lightspeed, as far as company executives know. The Caisse is that much more bound to Lightspeed’s fortunes as a result of this weighty investment—meaning it is that much more likely to invest further even if things take a turn for the worse, as the cost of letting the company falter would be high.

The Caisse did just this with its stake in one-time darling Element AI, investing more even as warning signs began dotting the horizon. Meanwhile, from the company’s perspective, such investment tends to engender a sense of invulnerability, as executives grow keenly aware of the government-backed safety net under them should they tumble. One need only look at Bombardier’s delayed development and botched rollout of its C-Series aircraft, to see the consequences of this moral hazard.

And truth be told, investing to keep businesses in the province hasn’t been particularly effective. Element AI was once a government-backed symbol of Quebec AI prowess, complete with mind-bending robot tech and ambitions to topple the Amazons and Microsofts of the world. Bought for pennies on the dollar in 2021, it is now part of a California-based workflow software outfit. Bombardier’s C-Series is finally making money—for France’s Airbus, which acquired the line in 2020. Meanwhile, the provincial government bought $156 million in Rona stock to keep the hardware chain anchored in Boucherville, Que., where it was born in 1939. Yet Rona departed regardless, when North Carolina’s Lowes came calling with $3.2 billion on offer.

Lightspeed’s 18-month stock market malaise has already hurt Quebec’s bottom line. The company’s shares are down almost 86 per cent from their high in September 2021, when a short seller’s report from New York-based Spruce Point said Lightspeed was less-than-transparent about its competition and profit margins. “Largely, our thesis played out,” Spruce Point founder and CIO Ben Axler told me last week.

Fitzgibbon, quick to answer when I ask him if Lightspeed is too big to fail, has an entirely different thesis. “I am very confident in the management and board,” he told me. “The stock price isn’t necessarily reflective of what’s going on in the company. 

“To be honest, I’m not focused on the stock price,” he said. “I’m more interested in the company’s role in Quebec’s ecosystem. I think it’s an important addition, and I think it’s important that we keep it.”

Whether the government bulwark holds up, and what the cost of keeping it upright might be, are open questions. Given the size of the government’s investment, and its clear intent to hang on, it’s not like we Quebecers have much of a choice but to wait for the answer. 

Martin Patriquin is The Logic’s Quebec correspondent. He joined in 2019 after 10 years as Quebec bureau chief for Maclean’s. A National Magazine Award and SABEW winner, he has written for The New York Times, The Guardian, The Walrus, Vice, BuzzFeed and The Globe and Mail, among others. He is also a panelist on CBC’s “Power & Politics.” @MartinPatriquin