Silver Spring (finally) makes it to Wall Street

Contact: Tejas Venkatesh

A year and a half after first filing its IPO papers, Silver Spring Networks has finally debuted on the public markets. The smart grid network company sold 4.75 million shares at $17 each, raising $81m and creating $750m in market value. The stock then promptly surged about 30% in its first hour of trading today.

The amount raised is only half the amount Silver Spring originally planned to raise when it filed its S-1 in the summer of 2011. It also pales in comparison to the money the company had already raised in the private markets. In its 11-year history, Silver Spring previously raised $330m in equity and debt capital from Foundation Capital, Kleiner Perkins Caufield & Byers and other firms.

Despite the first-day pop in trading, Silver Spring has attracted some bearish sentiment. For starters, the company, which has a high degree of customer concentration, reported that revenue actually declined 17%, year over year, to $197m in 2012.

Nonetheless, the offering valued Silver Spring at 3.8x trailing sales. That appears to be a fairly rich valuation, at least compared with recent acquisitions and even current trading multiples in the sector. In May 2011, Toshiba acquired energy management systems provider Landis+Gyr for $2.3bn, or 1.4x sales. Energy control networking platform vendor Echelon currently garners a market valuation of less than 1x sales. However, when we compare the three vendors, Silver Spring is the only pure-play smart grid network company.

Silver Spring’s valuation is also a recognition of the business opportunity in front of it. The company’s business rationale is straightforward: energy is an expensive and essential resource, for which demand is rising and supply is constrained. Silver Spring offers an IP-based network infrastructure that connects devices on a power grid, providing timely information to utilities and helping reduce energy costs and waste. Its hardware and software also allows utilities to bill consumers in an automated fashion, eliminating the need for manual reading of meters. Goldman Sachs and Credit Suisse, which also advised Landis+Gyr on its sale, led the offering, with Silver Spring trading under the ticker ‘SSNI’ on the NYSE.

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