Halogen IPO a true blowout

My investment advisor called yesterday with some good news and some bad news.

The good news was that Halogen Software had finished its roadshow marketing (see prior post “Halogen IPO filing gives Canadians their first chance to taste tech in far too long” Apr 2-13). The bad news was that the IPO had been so well received that I was only going to get a 25% fill on my RRSP order. And zero on my margin account.

The tale is incredibly affirming for Canada’s tech investment banking community, who’ve had to weather a particularly difficult period. Since, like, forever. The Halogen deal was marketed as a $45 million treasury and $5 million secondary offering (from star VC JMI Equity), and was upsized to $50 million treasury to help satisfy a bit of the $200 million of demand in the book. Retail investors got just 10% of the $55 million of stock sold, versus the 15-20% that you often see. And the hedge fund community got equally modest allocations, so there’s not much chance that flipping will get in the way of a good TSX opening. Halogen will start trading under the symbol HGN on the 17th, and I’ll have to get the balance of my order in the aftermarket like the rest of you.

The roadshow saw Halogen’s management team market trundle across Canada, with a week in the US and a couple of days in the United Kingdom; 80 PM meetings in total. Institutional orders came from all three markets, which you rarely see for a small cap deal. Canaccord Genuity took care of Canada and the UK, while co-lead Stifel Nicolas set up the US sessions. Despite the international interest, the backbone of the book was sourced in Canada, which is a great tribute to the Canadian PMs who haven’t had much new tech product to look at for a long time (see prior post “Belair / Ericsson deal a wake-up call for every Institutional Sales Desk” Feb. 22-12), and for ignoring the fact that Canada’s last small cap tech IPO hasn’t yet worked out as planned (see prior post “What impact will NexJ have on the next crop of Canadian tech IPOs?” Mar. 9-13).

To finance their own orders, some Canadian PMs are moving money from their resource allocation to the tech side, which must be the first time since 2004 or 2005 that anyone can say that with a straight face. The fact that Halogen achieved a 5x revenue multiple tells me that the entire team (both management and i-banks) was able to successfully position Halogen in the right group of U.S. software comps, rather than Canadian small cap land. Without having to rely solely on the recent success of the Workday IPO.

This might bode well for Descartes’ valuation, for example. And the success of the ViXS $50 million IPO earlier this week by GMP Securities and Stifel is another positive sign (see prior post “ViXS is next in line for Tech IPO parade” Apr 13-13)

Although the Halogen deal could have been priced at the top of the $10-12 IPO range, and most PM’s would have stayed in the book at that price, the company’s Board was very wise to take their dealer’s advice and go with $11.50/share. The Canadian tradition of leaving a cheeky “quarter on the table” turned out to be a sincere fifty cents here, and everyone will be better for it.

Hearty congrats to all involved. This might just get other Boards of quality private tech companies to sit up and take notice.

MRM
(disclosure: this is an Opinion Piece; as I say from time to time, I’m not licenced to give investment advice and this should not be taken as such)

 
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Crafty social media campaign afoot to stop #PorterPlans

If you’ve never read “Both My Houses” by Father Sean O’Sullivan (with Rod McQueen), I recommend you get out to the local library and give it a read. It is a wonderful read, with many a hilarious political war tale. Father Sean told some great stories about how John Diefenbaker dealt with the raft of written correspondence he received each day on Parliament Hill. Dief took true pride in this part of his role, particularly following his time as Leader of the P.C. Party. He would spend part of most days reading aloud many of the supportive letters, and ensuring that most got a meaningful response whether they were from fans or foes. And a photo, although who actually signed the black & whites depended upon the day.

In 2013, things are different. The public has many new ways to communicate on matters of public policy. Snail mail still works, but the ease of email and social media have created an entirely new way of interacting with politicians. What would Dief have done — as a man who loved well chosen words — with just 140 characters?

Like many of you (although I’ve got no opinion on the matter), I’ve been watching the dialogue around the April announcement from Porter Airlines. Although this issue is between Bob Deluce’s team and Toronto City Council, about five fierce opponents of the plan have sought me out on Twitter. Most go by fake names associated with animals or marine life: Goats, Sharks and Fish to name three. I asked one why he didn’t use his real name while he was browbeating me, and he said it had something to do with his work; and that I’d understand (as in he works for Adam Vaughan?). He feels very strongly about Porter’s Plans and the Toronto Port Authority’s unrelated May 2012 plans to improve the Toronto Harbour’s Marine Exclusion Zone, and wants his views acted upon despite the anonymous veil.

It made me wonder how John Diefenbaker dealt with a letter from a constituent who wanted his views heard on an important issue but signed the letter “anonymous” and didn’t include a return address. If Father Sean was still alive, he’d know the answer.

The first tweet I came across this morning about Porter’s Plans was written by “Amelia Solesbee”, using the catchy Twitter handle of @Gabrielaqflr, even though @ameliasolesbee hasn’t yet been taken by anyone. Here’s what Amelia had to say:

No Jets #TO hoping council will ground the staff study of Porter airlines expansion next week #TOpoli

Amelia is supporting something called NoJetsTO, which appears to be the new “campaign name” of CommunityAir (or at least they overlap in their particular venn diagram), the group that’s been trying to close the Billy Bishop Toronto City Airport over the past few years (see prior representative post “The “horror” of urban noise” Nov. 10-09). No JetsTo has 98 followers, which in the world of Twitter is a start. They include City Hall journalists, local anti-airport politicians (such as Councillor Gord Perks), the Parkdale High Park NDP (see previous), Derek Vanstone (Air Canada exec), and a municipal lawyer who writes and edits the blog over at Community Air (see prior post “Anti-airport lobbyist: ‘I was spectacular’” Dec. 3-10). Interestingly, 3 of the group’s first 6 Twitters followers are part of the core group of five who’ve been sharing their strongly-held anti-Porter Plan views with me directly as Chairman of the Toronto Port Authority, the owner/operator of the profitable and popular Billy Bishop Toronto City Airport.

A proposal to study Porter’s Plans will be discussed by Toronto City Council this week, which is likely why “Amelia Solesbee” started off her day on the “No Jets” topic. Her first Tweet ever! I’m sure Twitter founders Jack Dorsey, Biz Stone and Evan Williams would be delighted that an issue of public policy got Amelia to finally sign up to the Twitterverse, which many of us have been toiling away within since early 2009. Driving the private valuation over $10 billion all the while.

Unfortunately, “Amelia” may not actually exist. As in, it’s not clear that she’s a real Toronto voter herself, despite being able to type the “#TOPoli” handle in her tweet to ensure that reporters, such as Natalie Alcoba, Don Peat and Vanessa Lu see the anti-Porter groundswell, not to mention the City Councillors who track such things. Despite her timely choice for a first topic, she’s only got 5 followers so far, who go by the Twitter handles of: @Teressagous, @Kaleygbdh, @Lorrettarra, @Mikaelaffnst, and @Patricasts. This crowd as a group have generated an aggregate total of 8 Tweets in their collective lifetimes, and appear to be the creation of a website that generates Twitter followers (@Patricasts provides a helpful web link), called Followers Delivery. Followers Delivery has an Upstate New York call centre, and for prices as low as US$20, you too can get some Twitter help in behind your political lobbying campaign.

Now, Amelia needs to improve her algorithm, since “No Jets #TO” won’t work in the Twittersphere. It has to be #NoJetsTo” with the hashtag at the front and no spaces between the characters for it to get picked-up in online Twitter searches. In an effort to be polite, I retweeted her post this morning. Now that I’ve welcomed Amelia to Twitter, let’s see if I can help her get a Twitter follower who isn’t a TwitterBot.

The issues under discussion are important and deserve thoughtful reflection, and there are certainly more myths (often fed to and by elected officials) out there than facts. It’s up to Porter Airlines to make the case, or not. But I’m sure of one thing. For all the buzz and attention that Twitter generates, politicians are far smarter and more saavy than falling for computer-generated Twitter handles spitting out Tweets on any given subject.

MRM
(disclosure: this post, like all blogs, is an Opinion Piece, and as a personal view should not be taken to represent the views of the TPA board, management or the Federal government)

 
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Job Posting: Business Development Manager

Published on May 2, 2013 by in General

With the recently announced Fourth Fund and new $600 million lending program, the team at Wellington Financial is looking to add someone in a Business Development Role. Think sales as much as financial or company analysis. If you love numbers but are shy, for example, this is not the job for you.

Attributes we are looking for:

- Minimum 2 years relevant prior work experience
- Exceptional written and verbal communication skills using English language
- Ability to maintain upbeat and positive attitude at all times
- Ability to meet business development targets
- Ability to use Microsoft Powerpoint, Word and Excel
- Ability to establish and develop networks for the purpose of building new
business relationships in order to generate deal flow.
- Self starter
- Strong analytical skills to assess opportunities

Role, responsibilities and duties:

- Responsible for assisting the firm win new business in target markets through
research and direct contact with potential customers
- Attend conferences and trade shows throughout Canada and the continental USA
- Promote Wellington Financial LP at industry events, conferences and trade shows
- Promote Wellington Financial LP’s products via direct telephone call and email
solicitation of potential clients and their venture capital fund sponsors
- Participate in the development of marketing collateral
- Identify relevant opportunities for venture debt transactions
- Utilize Salesforce.com to increase the firm’s database of potential clients
- Work within previously-approved business development budget
- Will involve regular overnight travel away from Toronto headquarters; up to 50% of any given month
- Role may involve occasional evenings at out-of-town conferences, trade shows
and other business development venues as part of new business development
- Ability to work efficiently under tight timelines

If this sounds good to you, please send your resume and cover letter to Lyndsey Fisk-Calhoun @ lfisk-calhoun@wellingtonfund.com.

MRM

 
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Mark McQueen co-hosts BNN

Published on April 30, 2013 by in BNN

For those of you who missed it, Mark McQueen was a guest co-host on BNN yesterday at 3pm to discuss the top stories of the day.  Click here to watch the first clip.

LFC

 
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Does Silver Lake’s blowout fundraise hint at moderated LP return expectations?

The largest private equity raise in the technology space was announced last week, as Silver Lake IV reached US$10.3 billion of Limited Partner commitments. This was far above the US$7.5 billion target. I’ve seen one of the Silver Lake founders, Glenn Hutchins, present a few times, and he’s as good as anyone I’ve ever watched at a podium. The message is always crisp, the anecdotes are poignant and often personal, and the multi-media show he ties to his off-the-cuff remarks suggests it takes a team of 16 people to prepare the research and professional programming to support his constant roadshow. Or else he’s a genius with both his assessment of international affairs AND a Master of Powerpoint.

Here are some neat details of the new fund, according to Reuters:

- For the first time in Silver Lake’s history, the majority of the investors in the fund were based outside the United States, with a big inflow of money coming from Asia and the Middle East, according to a person familiar with the matter.

- All the top ten investors by capital that participated in Silver Lake’s previous fund also made commitments to the latest fund.

- $300 million was committed to the fund by Silver Lake fund managers and entities affiliated with them.

- Silver Lake, whose best known investments include Skype and Chinese e-commerce company Alibaba Group, was founded in 1999 by Davidson, Glenn Hutchins and David Roux.

- Silver Lake has delivered a gross internal rate of return of 27 percent and a net internal rate of return (IRR) of 18 percent overall since its inception.

- Its previous fund, the $9.3 billion Silver Lake Partners III, which launched in 2007, was valued at 1.37 times the amount that investors had put into it, and had a net IRR of 16.76 percent as of the end of September, according to the New Jersey Division of Investment.

- Since the 2008 financial crisis, several private equity firms have launched funds that are smaller than their predecessors, making Silver Lake’s latest private equity fund an exception. Buyout funds raised $26 billion globally in the first quarter of 2013, a 44 percent increase from a year earlier, according to market research firm Preqin.

The Skype deal certainly gets a great deal of airplay here in Canada (see prior posts “Skype deal: is it a tech or infrastructure deal?” Sept. 2-09 and “Quick uptick on Skype?” Aug. 10-10), what with the CPP Investment Board’s co-investment and all (see prior post “12 questions CPP Investment Board won’t be answering on BNN today” Jan. 17-13). But what else is in there, beyond Skype?

I had a look at Silver Lake’s returns to get a sense of what it takes to attract US$10 billion to a tech fund these days. Here are the return figures, according to CalPERS:

Fund I (1999 vintage): 25.1% IRR, 2.3x multiple of capital
Fund II (2004): 9.8% IRR, 1.6x multiple of capital
Fund III (2007): 17.3% IRR, 1.4x multiple of capital

CalPERS is also invested in a couple of Silver Lake’s sister funds, as well:

Silver Lake Credit Fund (2008): 6.2% IRR, 1.3x multiple of capital
Silver Lake Sumeru Fund (2007): 11.5% IRR, 1.3x multiple of capital

According to one independent global PE fund tracking firm, not all of Silver Lake’s funds are in the top quartile:

Fund I (1999 vintage): 1st quartile
Fund II (2004): 3rd quartile
Fund III (2007): 2nd quartile
Sumeru (2007): 3rd quartile

To give you a sense of what multiples of capital LPs are ostensibly expecting on the return front these days, it is widely understood that a 2.5x return on your original capital invested is what it generally takes before a fund manager can be confident that he/she will have no trouble raising the next private equity fund.

Which puts a spotlight on Silver Lake’s undeniable fundraising success, since none of the last three equity funds (II, III and Sumeru) has yet to reach the 2x capital multiple threshold. Nor are they in they reported to be in the top quartile of their respective fund class/vintage (so far), at least in the eyes of one benchmarking firm. The funds in question may still have plenty of upside left in their portfolios, which is something that LPs will be better positioned to assess than anyone.

As well, if you raise funds in rapid succession, rather than every eight years or so, LPs may not need to earn more than 2x their invested capital to be happy. If a pension plan gave you $100 million, and they got back $140 million in the space of six years, rather than see no return in the public equity space as has been the case far too often, happiness will undoubtedly ensue.

Particularly if the volatility in the return is lower than average for the asset class.

Something else may also be afoot here, too. Brand matters, and Silver Lake’s is shining right now. The Dell deal has kept them in the media eye for months, although a couple of key LPs (CPPIB & Temasek) were reported to have passed on the opportunity to co-invest with the GP on that particular deal. Whether the Dell deal proceeds or not, Silver Lake is here to stay. Perhaps the message is simply that LPs are hinting that they suspect that the days of 20% net IRRs are over in buyout land, and that a predictable 9%-15% net would be just fine, thank you very much.

MRM

 
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