Monday, 24 September 2007

SmartStream lowers IPO price range

According to reports in the Independent this morning Click here SmartStream has lowered its price range for its IPO from £300m to "£175m -£200m" as a result of "current market volatility". SmartStream had revenues of £46.5m and an Operating Profit of £13.9m (before almost everything like depreciation, amortisation, share based payments, exceptionals - what we used to call "Profit before the Bad Bits") in year to 30th June 07.

According to an AFX archive news report (19th July 06), 3i lead an MBO of Smartstream in 2000 in a deal which valued them then at £83m. TA Associates bought out 3i in Q3 2006 for a value of around £100m. So, even at £175m, TA will have seen a quite decent return over a relatively short one year period.

SmartStream was considered a litmus test for the reception other UK software houses might receive to IPOs. If so, this latest price reduction is not that good an omen. It looks as if investor reaction has been string - but not at the initial price. If the price falls anymore, we could see the IPO being pulled and a trade suitor lined up. Misys was suggested a year back but they had a few of their own problems back then! Things a lot better at Misys now.

On the other hand, I have always contended that we need a strong IPO market. It seems to 'pull though' everything else. It's the 'barometer of the sector'. And that barometer has been looking pretty weak of late


Jack P said...

I just don’t understand the rationale behind the decision to IPO at this point in time. Granted the company seems to be coming off a reasonable year but looking back over the financials for the past several years shows a tumultuous history and a complete lack of consistency. Additionally they appear to offer a limited product set (and therefore limited options for growth). This coupled with market conditions and a rumour that one of their largest clients is considering alternative options instead of rolling out the marquee TLM platform suggest that this IPO might be poorly timed. What are the positives for this IPO? Why buy stock in SmartStream?

Richard Holway said...

Thanks for posting this. I'd rather talk it through with you if you want to give me a call. I try to avoid giving financial advice for obvious reasons and some of my views might be considered 'sensitive'!

Jack P said...

Thank you for the offer to talk Richard but I think my mind is made up regarding SmartStream and I will stay far away. This company was severely mis-managed since the buyout from GEAC and aside from the removal of the CEO after the TA acquisition, many of the same poor players remain in senior management roles. This is, likely, doomed to failure