For the next few weeks, potential investors are going to kick the stuffing out of Workbrain.
Think about it. Workbrain marks the first high-tech initial public offering to hit the Canadian market in three long years.
We've now all got this love/hate thing going on with the sector. We all lust after the lightning-in-a-bottle growth potential of a tech stock- it's such a lovely contrast to stodgy no-growth trusts. But no one wants to be fooled again, backing some dot-bomb concept companies that never had a prayer of making a profit.
So you just know that portfolio managers are going to sharpen up all their rusty software analytical skills and put Workbrain through the wringer. You guys are taking on PeopleSoft and SAP in the work force management game? How can you compete with the giants? What's your technology edge? Do your 52 clients represent a real commitment, or are they just your techie buddies at other firms, taking your software for a test drive?
Why would a company subject itself to this scrutiny, just to raise something in the neighbourhood of $35-million?
The fact that Workbrain is willing to step forward says a great deal about the company's strengths, and the times. This crew started writing software together at the peak of the tech market, in 1999. Through the worst of times, they've stuck together and steadily boosted revenue, to $16.8-million (U.S.) last year from $417,000 in 2000. This year, the expectation is $35-million in sales. Profit through the first nine months of this year ran to $1.4-million.
The client list runs to firms that have hourly work forces and multiple union contracts. American Airlines, the Toronto police force and General Mills are on board.
But it's the use of proceeds that's interesting here. In a financing that's being led by RBC Dominion Securities, Workbrain's principals aren't cashing out, a contrast to many dot-com IPOs. This firm needs money to expand its sales effort and win new clients. It also needs cash to fund new software.
And Workbrain wants to buy out rivals. It's not looking at what the investment bankers like to call 'transformational deals,' a bet-the-company type of takeover. The executives just know that in the cash-strapped tech world, there's plenty of good software that can be acquired on the cheap, then exploited by a more successful company. In local circles, Open Text turns this trick, while the master is deep-pocketed Microsoft.
That's a reason to sail into some obvious storms and go public just as technology stocks are moving back into vogue. When its shares begin trading on the Toronto Stock Exchange, Workbrain will have full coffers and stock to use as a currency in deals. That will give the company an advantage over private rivals, as well as many public high-tech companies.
Goldman Sachs eyes banks
Last year, Goldman Sachs decided to trim the list of Canadian companies that its analysts covered, and cover domestic companies with U.S. analysts. The rationale was there's plenty of analysts in domestic market, but it should be possible for U.S. analysts to distinguish themselves in the eyes of an institutional money manager by looking at Canadian corporations against all their global peers.
However, in making this shift, Goldman lost Toronto-based bank analyst Heather Wolf to Merrill Lynch. This week, the investment dealer resumed coverage of the sector with a three-person team. Analyst Lori Appelbaum is back for a return engagement, working with Miriam Kim and Vivian Song. In their first report, they have a neutral rating on the sector, with Bank of Nova Scotia their favourite stock, and point out that while fundamentals look good, major opportunities to build earnings are going to require opening up new markets.
New kid on the block
There's a new face in the block trading league tables this month. Familiar names such as BMO Nesbitt Burns were the top traders on the Toronto Stock Exchange in October. But Westwind Partners, an employee-owned shop formed last year by veterans of First Marathon and TD Securities, ranked ninth in the volume of its block trading.
Blockbusters
Top 10 dealers in blocks of 10,000 shares or more in October, 2003, by value.
............................Value.....Market
.........................($billion)....share
BMO Nesbitt Burns............$6.4......12.2%
RBC Dominion Securities......$6.2......11.7%
UBS Securities...............$5.8......11.0%
TD Securities................$5.7......10.8%
CIBC World Markets...........$5.0.......9.6%
Scotia Capital...............$4.9.......9.2%
National Bank Financial......$2.9.......5.5%
Merrill Lynch Canada.........$2.8.......5.3%
Griffiths McBurney...........$2.4.......4.6%
Credit Suisse First Boston...$1.4.......2.7%
......................Volume (million..Market
...........................shares)......share
BMO Nesbitt Burns..........$355.9.......9.5%
Griffiths McBurney.........$340.1.......9.1%
RBC Dominion Securities....$306.2.......8.2%
CIBC World Markets.........$297.5.......8.0%
UBS Securities.............$282.8.......7.6%
TD Securities..............$281.5.......7.5%
Scotia Capital.............$234.2.......6.3%
National Bank Financial....$185.9.......5.0%
Westwind Partners..........$144.7.......3.9%
Canaccord Capital..........$117.9.......3.2%
SOURCE: TSX DATALINX
Andrew Willis