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Smart Technologies revives IPO market with huge offering
Simon Avery
Smart Technologies Inc. injected some life into the languishing IPO market on Thursday with one of the biggest share offerings of the year.
The Calgary-based maker of interactive whiteboards completed a $660.1-million (U.S.) initial public offering on the Nasdaq stock market and Toronto Stock Exchange. The shares listed at $17 in New York and ended the day at $17.05., after briefly touching a high of $18. About 25 million shares traded hands during the session, representing more than two-thirds the valuation of the public float, with New York activity outpacing Toronto trading volumes by approximately 10 to one.
Investor appetite follows relatively lean months for the IPO market. In the first half of the year, only 39 companies went public in the United States. During the market corrections in May and June, 15 IPOs were withdrawn or postponed, according to PricewaterhouseCoopers. While the number of successful IPOs represents a 69-per-cent increase from a year earlier, it is just half the amount that went public in the first half of 2007.
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“Interim market challenges provide opportunities to reflect on the adequacy of the issuer’s readiness to enter the public equity markets and the post-IPO strategic plan,” said Scott Gehsmann, capital markets partners with PwC.
Smart Technologies, which put its IPO plans on hold 10 years ago when the tech market crashed, says it plans to diversify its revenue base beyond the education market by ramping up sales in the business and government sectors.
“We are positive about our current business results and our future opportunities,” Nancy Knowlton, president and chief executive officer, said in an interview.
The company says that only 7 per cent of global demand for electronic whiteboards is met. The devices combine characteristics of a traditional whiteboard display with a computer. By touching the surface of the product, a user can control computer applications, access the Internet, write in digital “ink,” and save and share work.
“We believe interactive white boards are becoming an important enabler in the schools for how children learn and interact,” Ms. Knowlton said. About 85 per cent of the company’s $648-million in sales last year were to the education market, with the remainder targeted at businesses and government.
Smart Technologies competes against larger companies, including Promethean World PLC, Hitachi Ltd., Panasonic Corp. and Samsung Electronics Co. But it had a 48-per-cent share of the global market at the end of 2009, according to Britain’s Futuresource Consulting and Smart Technologies’ own IPO prospectus. The worldwide market for interactive whiteboards will be worth $1.8-billion in 2012, Futuresource estimates, representing a 19.5-per-cent compound annual growth rate over two years.
Ms. Knowlton co-founded the company with chairman David Martin in 1987. For the fiscal year ended March 31, Smart Technologies posted a profit of $142-million on sales of $648-million. It has traditionally boasted an annual growth rate of between 20 and 30 per cent. Last year sales rose by 38.4 per cent.
Part of last year’s growth spurt appears to have come from the U.S. federal stimulus program that included funds for state and local governments to invest in technology. “We believe that we have been an indirect but perhaps substantial beneficiary of the [program],” Smart Technologies said in its prospectus. It’s unclear whether that sum will be made up from new revenue sources this year.
The IPO was driven largely by Smart Technologies’ two external investors, chip giant Intel Corp. and private equity firm Apax Partners.
“We were looking to provide some liquidity to Intel and Apax,” Ms. Knowlton said, adding that Intel invested in the firm in 1992.
Of the total proceeds of $660.1-million raised in the IPO, $483.7-million will go to Intel and Apax, $141.7-million to the company itself and the remaining $34.7-million to the underwriters.
Smart Technologies’ dual-class share structure gives ten votes per class B share compared with only 1 vote per class A share. The IPO comprised the latter. The newly listed shares represent just 5.3 per cent of the total voting power of the outstanding stock.
The co-founders own 34.2 per cent of the company and retain 32.4 per cent voting control following the IPO. Intel and Apax Partners now own about 22 per cent and 43.8 per cent respectively. Apax emerges with a controlling stake of about 41.5 per cent to Intel’s 20.8 per cent.
Ms. Knowlton said neither she nor Mr. Martin, her husband, are selling their shares in the IPO transaction and they both remain committed to running the company.
Smart Technologies will use its share of the proceeds to pay down debt and for general working capital, Ms. Knowlton said. The company has $213.7-million of contractual obligations and long-term debt due in 2011.
