Halogen IPO a true blowout

My investment advisor called yesterday with some good news and some bad news.

The good news was that Halogen Software had finished its roadshow marketing (see prior post “Halogen IPO filing gives Canadians their first chance to taste tech in far too long” Apr 2-13). The bad news was that the IPO had been so well received that I was only going to get a 25% fill on my RRSP order. And zero on my margin account.

The tale is incredibly affirming for Canada’s tech investment banking community, who’ve had to weather a particularly difficult period. Since, like, forever. The Halogen deal was marketed as a $45 million treasury and $5 million secondary offering (from star VC JMI Equity), and was upsized to $50 million treasury to help satisfy a bit of the $200 million of demand in the book. Retail investors got just 10% of the $55 million of stock sold, versus the 15-20% that you often see. And the hedge fund community got equally modest allocations, so there’s not much chance that flipping will get in the way of a good TSX opening. Halogen will start trading under the symbol HGN on the 17th, and I’ll have to get the balance of my order in the aftermarket like the rest of you.

The roadshow saw Halogen’s management team market trundle across Canada, with a week in the US and a couple of days in the United Kingdom; 80 PM meetings in total. Institutional orders came from all three markets, which you rarely see for a small cap deal. Canaccord Genuity took care of Canada and the UK, while co-lead Stifel Nicolas set up the US sessions. Despite the international interest, the backbone of the book was sourced in Canada, which is a great tribute to the Canadian PMs who haven’t had much new tech product to look at for a long time (see prior post “Belair / Ericsson deal a wake-up call for every Institutional Sales Desk” Feb. 22-12), and for ignoring the fact that Canada’s last small cap tech IPO hasn’t yet worked out as planned (see prior post “What impact will NexJ have on the next crop of Canadian tech IPOs?” Mar. 9-13).

To finance their own orders, some Canadian PMs are moving money from their resource allocation to the tech side, which must be the first time since 2004 or 2005 that anyone can say that with a straight face. The fact that Halogen achieved a 5x revenue multiple tells me that the entire team (both management and i-banks) was able to successfully position Halogen in the right group of U.S. software comps, rather than Canadian small cap land. Without having to rely solely on the recent success of the Workday IPO.

This might bode well for Descartes’ valuation, for example. And the success of the ViXS $50 million IPO earlier this week by GMP Securities and Stifel is another positive sign (see prior post “ViXS is next in line for Tech IPO parade” Apr 13-13)

Although the Halogen deal could have been priced at the top of the $10-12 IPO range, and most PM’s would have stayed in the book at that price, the company’s Board was very wise to take their dealer’s advice and go with $11.50/share. The Canadian tradition of leaving a cheeky “quarter on the table” turned out to be a sincere fifty cents here, and everyone will be better for it.

Hearty congrats to all involved. This might just get other Boards of quality private tech companies to sit up and take notice.

MRM
(disclosure: this is an Opinion Piece; as I say from time to time, I’m not licenced to give investment advice and this should not be taken as such)