Monday, June 11, 2012

The Daily Express - Floats Steady and Firms Are Awash With Cash

I am pleased to share some coverage of the London Stock Exchange's AIM stock exchange in the Daily Express, the UK's 6th most widely distributed newspaper with hard copy circulation of 600,000.  The article discusses IPO and Secondary Offering activity on the London Stock Exchange's AIM and the fact that seven U.S. companies completed IPOs on London's AIM last year, more than from any other country outside the UK.

Peter Cunliffe, City Editor, Daily Express, London, England

WHILE the number of new London AIM flotations has held steady, there has been a boom in cash raised on London's AIM.

US-based London AIM IPO specialist firm, AIM Advisers, said the overall strength of the London Stock Exchange’s AIM showed investor confidence was still high.

AIM Advisers, which helps US companies complete IPOs on the London Stock Exchange's AIM, has based its assessment on a study of listing activity during 2011.

It said 45 companies joined London's AIM through Initial Public Offerings (IPOs) during the year, one less than last year.  Of those, 38 were operating companies listing on London's AIM rather than investment firms.

But they raised a total of £516 million ($826 million) on London's AIM, an average of £14 million ($22 million) each, giving them an average market value of £41 million ($66 million).

Mark McGowan, Managing Director of AIM Advisers, said: “Generally speaking, the companies that completed IPOs on the London Stock Exchange's AIM during 2011 were smaller and stronger and simply required less growth capital.”

While the number of London AIM IPOs was satisfactory, he said secondary offerings on London's AIM were booming, with £3.6 billion ($5.8 billion) raised last year.

McGowan continued: “The strength of secondary offerings on London's AIM is a positive sign for London AIM IPOs over the medium-to-long-term as London AIM investors remain confident in the market.”

Seven American companies completed IPOs on London's AIM last year, more than from any other country outside the UK.

Friday, June 1, 2012

London's AIM - WANdisco Raises $29 Million in London AIM IPO - $24 Million for the Company and $5 Million for the Founders

With 2011 revenue of $3.9 million, which grew 30% from the previous year, and is projected to grow 46% in 2012 to $5.7 million, the Company was able to command an opening valuation of $59.2 million in its London Stock Exchange AIM IPO.  Future growth opportunities are focused on leveraging its core technology in the Big Data market and opening an office in China to target Asia.

CEO David Richards said, "I am delighted with the success of our significantly oversubscribed London AIM IPO and with the strong, supportive response we have received from our new, blue-chip, London-based, AIM Institutional Shareholders.  We have a clear strategy for growth and the funds raised through our London Stock Exchange AIM IPO will help us deliver on that strategy; opening up new markets, developing new products and creating new possibilities for WANdisco and its customers."

The London Stock Exchange's Head of AIM, Marcus Stuttard, said, "WANdisco's London AIM IPO is a great example of how London's AIM supports innovative, fast-growing companies in delivering on their global growth aspirations.  Raising equity capital on London's AIM is the ideal mechanism for ambitious companies looking to fund innovation and growth."

Overview of Listing on London's AIM
Sheffield, England and San Ramon, California-based WANdisco (Wide Area Network Distributed Computing) raised $29 million ($24 million for the Company and $5 million for the Founders) in its recent IPO on the London Stock Exchange’s Alternative Investment Market (AIM).

WANdisco provides global collaboration software to the software development industry.  Organizations with globally distributed software engineering teams have to deal with issues such as network latency and inconsistent availability, restrictions on scalability and security.  WANdisco’s differentiated, patent-pending technology, the Distributed Coordinated Engine (DConE), provides a cost-effective solution to these problems by changing the way servers interact over a WAN, enabling geographically distributed servers to stay continuously synchronized.  The Company has over 200 customers, across a broad range of industries, many of which are household names, such as, Hewlett Packard, Johnson & Johnson, Intel, Lockheed Martin, Sun Microsystems, Barclays, AT&T, Honda, John Deere and Wal-Mart.

The Company was founded in San Ramon, California in 2001 and moved its corporate headquarters to Sheffield, England in 2008, effectively using Northern England as an offshore development center since 78% of the Company’s revenues are derived from customers based in the United States.  WANdisco has 49 employees, 36 in Sheffield and 13 in San Ramon, with 27 focused on research and software development, 16 engaged in sales and marketing and six attending to financial, administrative and internal systems support.  The Company plans to further exploit its existing technology in adjacent customer markets, vertical industries and internationally, with a particular focus on China, Asia more generally, and apply its DConE technology to significant new markets, including the Big Data market.

Key London AIM Listing Metrics
  • $28.8m gross was raised on the London Stock Exchange's AIM, $24.0m for the Company and $4.8m for the Founders
  • $20.0m, net of offering costs, was raised on London's AIM for the Company intended to be used for: 
    • $9.7m – General working capital and potential complementary technology acquisitions
    • 6.0m – Developing an offering, leveraging its core technology, in the Big Data market 
    • 2.5m – Expanding the sales force
    • 1.0m – Continuing product development and management
    • 0.8m – Opening an office in China to target the Asian market opportunity
  • Offering costs on the London Stock Exchange's AIM amounted to 16.7% of the gross capital raised for the Company 
    • The offering was undertaken on a ‘best efforts’ basis, as opposed to being underwritten 
    • Three years of financial audits caused the London AIM offering costs to be higher than usual
  • Opening market capitalization on London's AIM of $59.2m
  • Dilution to existing shareholders on London's AIM of 40.5%
  • Free float on London's AIM of 57%
  • Trailing pre-money and post-money revenue multiples on London's AIM of 9.0 and 15.2, respectively
  • Forecasted 2012 revenue growth rate of 46%

Key Financial Metrics

(in USD millions)
Y/E 12/31/09
Y/E 12/31/10
Y/E 12/31/11
Δ ’09 - ‘10
Δ ’10 - ‘11

Cost of Goods Sold
Operating Expenses
Interest Expense
Net Income/(Loss)
Earnings/(Loss) BITDA

Total Assets
Deferred Income
Accumulated Deficit
Cash and Cash Equivalents

The Company’s revenues were derived two-thirds from the United States and one-third from Europe during 2009 and 2010; however, there was a dramatic shift during 2011 with 78% from the United States, 17% from Europe and 5% from the rest-of-the-world.  Furthermore, the Company’s revenues became less concentrated during 2011 with only one customer accounting for more than 10%, at 17%, whereas during 2009 and 2010, two customers accounted for an aggregate of 35%.  Since the London AIM IPO completed within nine months of the latest audited financial statements, unaudited, comparative stub period financials were not required and the Company chose to not provide updated management accounts, however, the house broker is forecasting 2012 revenue growth of 46%, to $5.7m, EBITDA of $0.6m and a small pre-tax loss.

London AIM Shareholder Base
The Company had 12.2 million shares outstanding prior to the London Stock Exchange AIM IPO and issued 8.3 million shares for cash in the London AIM IPO, leaving the Company with 20.5m shares outstanding.  The table below details those who held 3% or more of the Company prior to and/or after the London AIM IPO, along with the collective ownership of the Other Historic Investors and the Other New U.K. Investors.

    Pre-IPO %
    Post-IPO %

Founders (Chairman/CEO, COO and Chief Scientist)
Chief Architect
Former CTO
Other Historic Investors
London Private Client Broker (PCB)
London Institution (Pension and Insurance Funds) and PCB
Global Institution (Various Funds) and PCB
London Institution (Pension and Charity Funds) and PCB
Global Institution (Various Funds) and PCB
London and Edinburgh Institution (Various Funds) and PCB
London Institution (Insurance Funds) and PCB
London PCB (Venture Capital Trust Fund)
Edinburgh-based Global Institution (Various Funds)
Other New U.K. Investors

The Company was closely held by the three Founders and other employees.  An interesting element of WANdisco’s London AIM IPO was its ability to raise 10% of the $28.8 million from tax-advantaged Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) investors.  In order for a company to be eligible for VCT and EIS investors, it must, amongst other things, create a permanent presence in the U.K., which wasn’t an issue for  WANdisco since its corporate headquarters is in Sheffield.

Beyond the obvious benefit of creating $4.8 million of immediate liquidity by listing on the London Stock Exchange's AIM for the Founders and Chief Architect to satisfy the Promissory Notes issued as consideration for the options they exercised, the Company now has an adequate amount of growth capital for product and geographic expansion and a solid base of blue-chip London AIM Institutional Investors from which to create additional post-IPO liquidity and raise additional capital on the London Stock Exchange's AIM, if necessary.  In addition, the Company believes that its London AIM IPO and public market status on London's AIM will raise its profile in the sector, providing comfort to existing customers and assisting in securing new customers.  Finally, as a London AIM-listed company, WANdisco’s Share Option Plans will be more attractive and provide greater incentives to existing and prospective employees and Board members.

London AIM Board of Directors and Corporate Governance
The Board of Directors consists of three Executive Directors (two of the three Founders, one acting as Chairman and CEO and the other acting as COO, and the CFO) and two Non-Executive Directors (both NEDs are considered independent); all with solid resumes and a good blend of complementary experiences and skill sets.  The Board will meet at least six times per year.

Companies listed on the London Stock Exchange's AIM are not required to comply with the U.K. Corporate Governance Code, which is mandatory for companies listed on the Main Market of the London Stock Exchange; however, as is typical, the Company intends to follow, to the extent appropriate for its size and nature, the Corporate Governance Guidelines for Smaller Quoted Companies, which are published by the Quoted Companies Alliance.  Since the role of Chairman and CEO are held by the same individual, in contravention of the Corporate Governance Guidelines, the NEDs will meet annually to discuss the performance of the Chairman.

The Company has established Audit, Remuneration and Nomination Committees.  The Audit and Remuneration Committees are chaired by a NED, with the other NED serving as a member, along with the COO being a member of the Audit Committee and the Chairman and CEO being a member of the Remuneration Committee.  The Nomination Committee is chaired by the Chairman and CEO with all of the other Directors being members. The Audit Committee will meet formally at least four times a year and the Remuneration and Nomination Committees are expected to meet not less than two times a year.

London AIM Accounting Considerations
Since the Company is domiciled in Jersey, which is one of the two bailiwicks comprising the Channel Islands, a Crown Dependency of the U.K., and the U.K. is a European Economic Area country, the Company is required to report using IFRS.  Since all of the Company’s revenues are earned in U.S. Dollars, the U.S. Dollar is the functional currency and was also chosen as the reporting currency.

The U.K. Member Firm of an international accountancy network acted as Auditor and Reporting Accountant.  Since the audited financials were less than nine months old, unaudited, comparative stub periods were not required and the Company chose to not provide updated management accounts.

An unaudited pro forma statement of net assets is never required and was not provided in this instance since the effect of the net proceeds from the London Stock Exchange AIM IPO on the net assets of the Company is obvious.

London AIM Legal Considerations
Since the Company is not incorporated in the U.K., but rather in Jersey, which is one of the two bailiwicks comprising the Channel Islands, a Crown Dependency of the U.K., the three most important elements of English corporate law do not automatically apply.  As is customary, the Company amended its constitutional documents for these three main differences as outlined below, except for the fact that the U.K.’s City Code on Takeovers and Mergers does automatically apply by virtue of the fact that the Company’s ‘place of central management and control’ is deemed to be in the U.K.
  1. Pre-emption rights (i.e. anti-dilution) – Shareholders may participate in, or the Company has to obtain approval from at least 75% of them for, the issuance of shares for cash on London's AIM of more than 10% of the then outstanding shares during any 12-month period.[3]
  2. Notifiable Interests – Shareholders are required to notify the Company of, and the Company is required to publicly announce, holdings at or above the 3% level and whenever a full percentage point is breached in either direction.
  3. Takeovers (i.e. mandatory offer) – If any party, or parties acting in concert, accumulates a holding of 30% or more, they must make a cash offer to the other London AIM shareholders at the highest price they paid for the Company’s shares during the last 12 months.
The London Stock Exchange AIM IPO was not subject to Regulation S of the U.S. Securities Act of 1933; therefore, the AIM-listed shares are eligible for dematerialization and trading within CREST, the most common electronic system for the holding and transfer of shares in the U.K.  As such, it was not necessary to appoint a Depository and create Depository Interests, as would be the case for a company domiciled outside the U.K. or one of its Crown Dependencies, the Channel Islands or Isle of Man.

The Company’s AIM Nominated Adviser (Nomad) did not require the preparation of any Experts’ Reports; however, certain information contained in the AIM Admission Document was sourced from Gartner.  As far as the Company and Directors are aware and are able to ascertain from the information published by Gartner, no facts have been omitted which would render the reproduced information inaccurate or misleading.

[1]  Subject to a 12-month lock-in and customary orderly market provisions on London's for a further 12 months.
[2]  In addition to the dilutive effect of the new capital raised from the London AIM IPO, they sold some of their shares and raised $4.8 million, half of which was used to satisfy Promissory Notes issued by the Company as a result of exercising options a few months prior to the London Stock Exchange AIM IPO, effectively a cashless exercise with a few month delay, and the other half was used to satisfy their personal tax liabilities.
[3]  This is the typical level at which London AIM-listed companies seek an annual standing authorization from their shareholders for the issuance of additional shares for cash on London's AIM.  This flexibility increases the certainty and speed of small capital raises during the year and reduces transaction costs, since further communications with, and approvals from, shareholders are not required.