Wednesday, February 3, 2010

20 New England tech firms launched IPOs in 2007 — Where are they now?

By Galen Moore

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Right now, talk of an IPO thaw sounds a lot like that of Red Sox fans at about this time in 2004: “This could be the year.”

Amid rising investor enthusiasm, the initial public offering can start to look like a realistic goal for any mature startup that is growing and doing well. But for great companies, it’s only another milestone. Fast-growing startups must become fast-growing public companies, or they are likely to recede quickly when bubbles burst.

To find out how companies sustain their momentum past the IPO, we looked at the 20 New England firms that went public in 2007, the last year in which the U.S. had a meaningful slate of new companies going public. For many, share prices are languishing well below their 2007 stock-market debut. However, a handful have recovered ground lost in 2008 and 2009 — and some have gone well past it.

We asked some of 2007’s IPOs to talk about the lessons they’ve learned, having launched their boats directly into the path of some of the public market’s stormiest years on record.

Scroll down to see the full list of the 20 firms and their status below.

Netezza Corp.
NYSE: NZ   
Annual revenue: $187.8 million
IPO fundraise: $108 million    
Lesson: Attract long-term investors early on.

When the economy caught the flu, stock-market ague wasn’t the only pain gripping Netezza Corp. In the frozen winter of 2008 and 2009, companies virtually halted spending on big-ticket business intelligence projects. For Netezza, which makes data warehouse appliances designed to crunch data faster and better, that stoppered the sales pipeline.

The company came out of the gate strong after its July 2007 IPO, cracking $50 million in quarterly revenue by fall of 2008. But in the next quarter, Netezza began an earnings slide that lasted three quarters. In November, the company reported $47.7 million in quarterly revenue — below the year-earlier period, but a reversal of the quarter-to-quarter downward trend.

Netezza’s share price has climbed back up above $10 — short of its initial $15-per-share offering, but it could be worse, CFO Patrick Scannell said. The low-water mark was $5.25, a price set on Feb. 20, 2009. It was around that time that Netezza stopped offering investor guidance.

It cut back on hiring. At the same time as its top-line shrank, Netezza got away with a small operating loss that lasted only one quarter. It did not lay off employees, Scannell said.

From its first day on the public market, Netezza sought to build a base of large shareholders interested in buying for the long term. These long-only stock holders minimized the damage to Netezza’s stock market value that could have resulted from a lot of short-term trading on the ups and downs, Scannell said. “It creates stability, and it creates investors that know the story and are in it for the long haul.”

Now, Scannell said, Netezza is seeing a return to normal, and has begun to resume hiring and investing.

“The kind of companies that used to get built on the East Coast, like the Digitals and Data Generals and EMCs, we still have that hope and that vision that we can be that company,” he said.

EnerNOC Inc.
Nasdaq: ENOC
Annual revenue: $106.1 million
IPO fundraise: $91.7 million
Lesson: Get into the public markets as fast as possible, then ignore them.

Less than six months after EnerNOC Inc. made the decision to go public, shares in the Boston-based energy demand-response company were trading on the Nasdaq. With discussions about an IPO brewing since mid-2006, CEO Tim Healy began hiring finance expertise into the company’s executive team. Executive vice president David Samuels, who joined the company just before the decision was made to go public, proved to be a critical hire, Healy said.

“Without David, I think it would have taken us another half year, and it wouldn’t have been half as successful,” he said.

The initial success was impressive, as EnerNOC rose from its $26 initial share price to the mid-$30s in its first day of trading, and kept climbing through 2007 to flirt with $50 by the end of the year. After that, it cratered, falling to near $10 the following March, and near $5 by November. As its share price sank, its revenue only went up. The third quarter of 2008 was EnerNOC’s best to date. “It was difficult to reconcile, because nothing fundamental about our business had actually changed,” Healy said. “The only thing that had changed was people’s appetite to invest in growth companies.”

In an opposite tack to that taken by Netezza, EnerNOC — today trading in the mid $30s — decided in 2008 to provide guidance, he said. But other than that, the firm’s leadership had to ignore what was happening in the market.

“Your share price seems to be a public scorecard every day, and it can’t be,” Healy said. “Let the external noise take care of itself.”

Athenahealth Inc.
Nasdaq: ATHN   
Annual revenue: $139.6 million
IPO fundraise: $90 million   
Lesson: Open the books.

In 2008, Athenahealth found itself in a similar situation to EnerNOC. Its revenue-sharing model, providing software-enabled billing services to healthcare businesses, didn’t suffer from the pipeline blockage that hit traditional enterprise IT companies like Netezza. But waning investor confidence brought its stock, which had peaked at $44.95 a share in November, 2007, to a low of $21.20 less than a year later, in October 2008.

It was a mild valley, compared to what other companies went through. Athenahealth stuck to its philosophy of not providing quarterly investor guidance. Instead, the company served up some of its own business intelligence, designed to restore market confidence in its business, said investor relations director Jennifer Heizer.

Athenahealth takes a piece of every bill it helps doctorscollect from insurers. Through its network of customers, it has a window into patient volume. “We did dig into our data as a network to harvest information on changes and appointment volumes,” Heizer said. “We were able to give people that assurance that even within our existing (customer) base there shouldn’t be a fall-off.”

As a public company, Athenahealth has periodically used earnings calls to provide additional data of this kind, she said. “It goes a long way in giving you additional credibility. You’re not just operating on a gut instinct or general numbers.”

The Departed
Starent Networks and others

Of the 20 companies that went public in 2007, just 14 still list their shares on stock markets. Among the other six, three had less-than-favorable outcomes. 

Rhode Island-based electric scooter maker Vectrix filed for bankruptcy in September. Airvana Inc. made a deal to be acquired by a private equity firm for just above the IPO share price. Biotech Targanta Pharmaceuticals, which targeted superbug infections, went to a strategic acquirer in February for a fraction of its IPO share price.

The remaining three — BladeLogic Inc., Sirtris Pharmaceuticals and Starent Networks — were bought by strategic acquirers at prices well above their initial stock offering. Server management tools maker BladeLogic lasted less than a year in the public market before BMC Software Inc. snapped it up for $28 per share — a 160-percent return for anyone who bought in at the initial share price of $17. The next month, GlaxoSmithKline bought aging-focused biotech Sirtris for more than double its $10 IPO price.

Mobile networking company Starent Networks was the most recent, and most successful, post-2007-IPO acquisition in the region, selling to Cisco Systems Inc. for $35 a share, nearly three times the company’s initial public offering, in a deal that closed mid-December. A Starent spokeswoman declined to comment, citing the company’s ongoing integration with its new corporate parent. 

2007 revisited
Only a handful of firms in the IPO class of 2007 are ahead of the game in stock value, although a few had healthy exits

Source: Dow Jones VentureSource    Listed alphabetically except those no longer public