CDN tech IPO market stirring to life

It is starting to feel like December 2003. Folks in the tech industry will know what I’m talking about. Software co. Workbrain went public, becoming the first technology story post-bubble to “get out” on the TSX. It was a great event for VC-backer Edgestone, and the sought-after leads went to RBC Capital Markets and CIBC World Markets.

The U.S. tech IPO window is always the first of the two to open, and at last check the six recent U.S. tech IPOs were all trading above issue price. More will be lining up by the day, although the challenge will be far fewer Underwriters to work with now that their i-banking market has shrunk. The U.S. post-IPO trading success can only mean one thing. Get ready for the new domestic tech IPO market, ’cause it is right around the corner.

A few months ago, we reminded readers that Information Technology shares traditionally lead the index out of a bear market (see prior post “IT shares have led the way out of 4 prior troughs” March 15-09).

Although those historical stats covered just 90 days, just look at what has happened to these identifiable tech names over the past six months:

Bridgewater Systems (BWC:TSX): +55%
Dragonwave (DWI:TSX): +325%
Descartes (DSG:TSX): +60%
Evertz Technology (ET:TSX): +10%
Macdonald Dettwiler (MDA:TSX): +65%
MKS (MKX:TSX): +61%
Miranda (MT:TSX): -22%
Open Text (OTC:TSX): +2%
RIM (RIM:TSX): +64%
Wi-LAN (WIN:TSX): +33%

Compared to the NASDAQ’s mid 30s performance, most of the these numbers are quite impressive; which gives the would-be tech Underwriting crowd the confidence they need to start pitching IPOs again.

Which are most popular names? The first two doors being knocked on are Montreal’s Radialpoint and Vancouver’s Vision Critical (which also happens to be a Wellington Financial Fund III portfolio co.). Each are former winners of the Deloitte Technology Fast 50, and once you make that high growth profitable, the world becomes your oyster in tech land.

Radialpoint is in the managed services business, and recently raised $98 million from TA Associates. Part of which had to be a secondary transaction. Still, with that type of capital going in, one can only assume the post-money value of the deal exceeded $300 million. Which puts it in the $500-600 million valuation range right now.

Vision Critical is in the software element of Angus Reid’s new venture. Research panels are their key product offering, and sister company Angus Reid Strategies is in the more traditional market research world. Although the capital-raised figures are private, there has been just one meaningful round done, led by Newport Partners. Few companies have grown as fast over the past four years as VC. One similar U.S. software-based research story was recently acquired by a private equity firm for 5x revenue; that’s a jazzy multiple. Dr. Reid sold his last business for $100 million, so you can be confident that he knows what he’s doing when it comes to building shareholder value.

Other great stories have received profile of late, such as the firms that made the cover of a recent Canadian Business Magazine: Belair Networks, BlueCat, Biox, BTI Systems. But it’s expected that either Radialpoint or Vision Critical are the “Workbrain” of 2010.

Need I remind anyone of what happened to the shareholders of private co. Platform Computing? Received plenty of IPO interest in ’03 and ’04, but no one could get to the rumoured $800 million valuation. Guess who is still private, five years later?

A cautionary tale for the current crop of great tech stories. Where would RIM be today if it had stayed private?

MRM
(disclosure – I own MKS and RIM)