It's a Go: CREO's IPO
(Note - this column was updated on 25 May to correct errors in currency. The fine print on the prospectus explains that all figures are in US funds except where specifically identified as Canadian funds. Likewise, all dollar figures referred to herein - only with respect to CREO - should be read as US dollars. Notwithstanding, I still believe that the IPO is underpriced.)
In my last column I mentioned that CREO Products Inc., a well known local private company might soon be launching its IPO. CREO is one of BC's largest and fastest growing tech companies specializing in pre-press printing technology. Well, it came a little sooner than I expected.
CREO filed its preliminary prospectus on May 14th for an initial public offering of 5,000,000 shares. Pricing is expected to be in the $14 range. With approximately 32 million shares outstanding after the new issue, CREO is being valued at only $448 million. I say "only" because, given its potential, this sounds cheap. Other electronics companies with comparable sales and earnings are getting better valuations. This means that the underwriters are driving a hard bargain in negotiating the offering price with CREO and if they have misjudged the market, we should see a nice uptick when the shares start trading on the TSE and NASDAQ. I base my assessment of value on CREO's current annualized sales volume which is running in excess of $150 million with over $15 million in current net earnings. A P/E of 30 applied on a trailing basis, would equate to the underwriter's valuation. However, it would appear that little recognition has been given to the growth potential and CREO's proprietary market position (as noted in the prospectus available on the SEDAR website at http://www.sedar.com).
I bet that the market will put a value closer to $1 Billion on CREO and early investors should enjoy a quick return. To participate in the IPO, call your broker or one of the underwriters - RBC Dominion, Merrill Lynch, or Solomon Smith Barney. This IPO is being made in British Columbia, Ontario, and the U.S.A. (can you believe it? - only in two provinces but all of the USA! You can thank our fragmented Canadian securities regulatory system for that!). The U.S. offering and listing on NASDAQ will provide a much larger buying audience which will add to the prospects of a better valuation.
I repeat from my previous column: This will be a very popular IPO with lots of upside potential. I believe that CREO will be the first BC firm to hit the $500 million sales mark. Check it out today.
More IPOs
Sierra Wireless Inc. (TSE:SW) started its life as a public company last week. It had its IPO of 4.5 million shares priced at $14.50 per share. Sierra Wireless, a Richmond firm, provides wireless data communications equipment used for wireless applications such as internet access and remote data base inquiry.
Sierra's trading has been in the $14.00 to $15.25 range and it closed at $14.05 on May 22nd, slightly below its offering price. So, if you couldn't get in on the IPO, here's your chance. If you liked it at $14.50, you should like it even more now because nothing has changed. Unlike CREO, though, this offering was not made in the USA and perhaps this is why the stock has not been bid higher.
I can't help but compare Sierra's offering to the one in process by CREO. Sierra's valuation of approximately $200 million, in my view, was reasonable in light of the company's performance and its future prospects. But, in comparison to Sierra, CREO's annual sales are almost nine times greater with comparable net margins (both running at around 10% of sales). We'll soon see if the market values CREO at just over three times Sierra's valuation!
Multiactive Software Inc. (CDN:MSWI), just completed an offering of 13 million common shares at $1 per share. Multiactive went public on the Canadian Dealing Network (CDN) via a reverse takeover of Wheat Hills Resources Inc. The Company now has approximately 58.5 million common shares outstanding. Multiactive was founded in 1995 by Terry Hui of Vancouver B.C. when it acquired the "Maximizer" software. Multiactive has since expanded into the area of e-commerce software and has become a recognized key player in the rapidly expanding e-commerce software field. The stock is trading in the $1.00 to $1.10 range.
Who's next with an IPO? Well, it's only a rumour, but Pivotal Software Inc. may hit the market in the next month or two. Pivotal develops and markets integrated application software products for customer relationship management (CRM).
All these IPOs will certainly make the T-Net index more substantial and will allow more BC residents to participate in the growth of the tech sector! Read about IPOs first on the T-Net daily news.
Another fairly new tech company, was created when an former Murray Pezim (a VSE legend) company, Prime Equities changed its name to medEra Life Sciences Corp (VSE:MER, OTCBB:MEDRF) last summer. I spoke with Eric Groner, an investment adviser with Canaccord about medEra's prospects. Eric's comments reflect his enthusiasm: "medEra is an exciting new public company whose business focus is the development and management of online medical information services. With its site launch scheduled for the 1st week of July and the recently announced joint venture with Ericsson Communications, this stock has the potential to be an explosive performer this summer. Of particular interest is the company's two competitors, Onhealth and Mediconsult.com, both of which trade in the U.S. in the $12 - $13 range with market capitalizations in the hundreds of millions dollars. medEra, with its superior site, (audio/visual as well as text-based) has a market capitalization of just $30,000,000 (U.S.). As the date of the site launch approaches, I expect the share price of medEra to approach its U.S. counterparts. Keep in mind that medEra combines the two hottest sectors in the market today - audio/video broadcasting on the Internet (look at what Yahoo! paid to acquire Broadcast.com) and healthcare." Eric is recommending the stock, now trading at $4.80, to his clients. Feel free to contact him directly at Canaccord Capital (604) 643-7045. It's interesting to note that the VSE legend's son Michael Pezim, a doctor, is behind this company - like father, like son - but this time in high tech!
VCP Update
Sican Ventures Inc. (VSE:SVZ) is a Venture Capital Pool (VCP) company which started trading on the VSE on May 19th. Although the IPO price was only $0.20 per share, the stock traded up to $0.50 and closed at $0.42 on May 22nd. The principals behind the deal are: Simon Lai, Jesse Chan, Brad Barrett, Edward Bollinger, and Brian Bapty.
Silicon Slopes Capital Corp (VSE:SLS) completed its IPO on May 10th, and began trading on May 12th. It opened at $0.55 and traded up to $1.00, closing at $0.78.
Sabertooth Holdings, Inc. (VSE:SBH) has filed its prospectus for an offering and is expected to start trading shortly. It has an impressive Board including Gordon Politeski, Jim Heppell, Paul Visosky, Michael Evans, and Ron Murphy - all of which are quite well known in the high tech community. 2 million shares are being offered at $0.20 per share.
Empire Technologies Ltd. (VSE:ET) is expected to complete its IPO and start trading next week. Its principals are Joel Rutherford, Cedric Steele, Graham Lee, and Bob Skene. These folks, especially Bob Skene, are well plugged into the technology industry and should have good access to promising acquisitions. In any event, they have a cute ticker symbol: ET. 2.5 million shares are being offered by Pacific International at $0.20. P-I has been involved with quite a few VCP companies and it may be worth giving them a call.
Check our Venture
Capital Pools chart for a complete updated list all the VSE's VCP companies.
To date, only two of the 19 VCP's that have issued a prospectus have completed
their "qualifying transaction" (QT) thereby removing their VCP status.
Copyright, 1999.