Contact: Brenon Daly
With SolarWinds debuting on the public market Wednesday and OpenTable set to follow shortly, some observers have suggested these offerings mark a return of the IPO market. While it’s always healthy to have new issues, particularly after months and months without a technology IPO, we think it’s a bit overly optimistic to say either offering will kick off an IPO market like we had even two years ago. Certainly, there will be a handful of companies that make it out the window. But we don’t expect there to be a flood of new offerings.
That’s particularly true if we look at the astonishing numbers put up by SolarWinds. We doubt many other IPO hopefuls were able to generate anywhere near the $6m in net income in the first quarter that the network management software vendor recorded. In fact, we’re fairly certain that some companies thinking about putting in an S-1 won’t even generate as much profit in all of 2009 as SolarWinds did in one of the toughest economic quarters in recent history. Wall Street appears ready to reward the black numbers at SolarWinds. The company priced its offering at $12.50 per share, ahead of the initial range. With some 64.2 million shares outstanding, SolarWinds started life on the NYSE with a valuation of $803m, although it moved up above $900m in early trading Wednesday.
Nonetheless, the rich valuation at SolarWinds (8.6x 2008 sales) may well encourage a few companies to dust off their IPO paperwork and update numbers. One obvious candidate: NetQoS, a fellow Austin, Texas-based networking software company. (We noted last year that the company had done a bit of ‘portfolio round-out’ ahead of what we expected would be an IPO this year.) And Nimsoft is undoubtedly cheering for a warm reception for SolarWinds. Nimsoft offers essentially the same technology as SolarWinds but targets the midmarket, while SolarWinds sells primarily to small businesses. (Nimsoft was in the market earlier this week, picking up assets from Cittio to bolster its network monitoring product.) Since Nimsoft has only about half the revenue of SolarWinds, it’s probably a bit early for the vendor to plan a prospectus. Nonetheless, it’s always helpful to have a strong, richly valued comparable public company when considering an IPO.
One less obvious – but more intriguing – vendor that could be drawn out by a well-received SolarWinds offering is Barracuda Networks. Both firms have the same models of high-volume sales of software to small businesses, and both are currently running at over $100m in annual revenue. Barracuda is tight with its financials, but word is that the company is closer to $150m in sales right now. Even if it doesn’t have the same rich margins that SolarWinds enjoys, Barracuda would almost certainly be worth more than $1bn on the market.