Israeli tech IPO testing TSX appeal

The timing might be poor, but the TSX is stepping into the breech in the wake of the all too predictable lockdown of the AIM market (see prior posts “Bizarro AIMo part 4” April 24-07 and “Bizarro AIMo 3 – The AIM Casino“, March 10-07).

About a month ago, Israel-based Exent Technologies filed a preliminary prospectus here in Canada. I’m told it is the first-ever IPO for a firm based in Israel with no specific links to our country other than the prospect of a public listing.

The novel idea appears to have been pushed by both the TSX itself as well as several independent Canadian underwriters in the wake of the apparent shutdown of London’s AIM market. In an attempt to build their business and strike while the AIM iron is cold, the TSX is billing itself as the “junior NASDAQ” and trying to lure firms here from around the globe.

Toronto has long been the centre for international mining listings, but tech is something completely novel.

GMP is leading the deal, with Genuity, Raymond James and Canaccord.

Exent bills itself as:

“a global leader in developing and marketing software products and services that enable the broadband-based delivery of video games known as Games-on-Demand. Games-on-Demand services are designed to monetize the extensive catalogue of video games that are no longer likely to generate significant revenue through retail sales channels. This is achieved by a broadband-based distribution of video games to end-users through paid subscriptions and through free, ad-supported offerings. We market and sell our unique video game digital distribution platform and video game advertising technologies directly and through channel partners to broadband service providers and media companies that offer Games-on-Demand services to their end-users.”

We’ve had just one portfolio company in the videogame space (Dreamcatcher, acquired by Austria’s Jowood in January 2007) and can attest to the short shelf life of most individual game releases. Perhaps there are great margins in offering a game for, say, 50 cents for a week of on-line play. There’s certainly a market for some online gaming communities; just think about the millions of people playing Warcraft each day. The woman who cuts my voluminous locks of hair is forever complaining that her husband and 10 year-old son wake up to 5 a.m. on Saturday mornings to play 8 or 12 straight hours of Warcraft.

As a delivery model it makes sense, but the allure of the titles is usually what it’s all about. We learned on Dreamcatcher that the hit-and-miss nature of video game design/production is awfully similar to the movie business. Except for the lack of casting couches.

With US$5.8MM of revenue for the most recently reported fiscal half period, there will be questions about critical mass – even though the topline grew 52% over the prior period. Exent seems to have good gross margins, and with a very modest net loss for the first half of 2007, perhaps accounts will take a shot on the name. Unfortunately for all concerned, there are plenty of deals to choose from right now.

Bridgewater (see post “Bridgewater IPO finally arrives“, November 6-07) is also slogging through a choppy market, and there are also some alternative energy plays currently on their roadshows as well. All while the stock markets are correcting.

As a friend on an institutional sales desk would say: “yuck”.

MRM