Workday, a loss-making U.S. business software company, paved the way on Monday for the biggest technology IPO since the troubled Facebook listing, as it announced plans for a stock sale that would value it at up to $3.85-billion (U.S.).
Workday’s arrival on Wall Street marks a swing into favour for business technology IPOs after the bumpy ride of consumer companies such as Facebook Inc., Zynga Inc. and Groupon Inc., while also rekindling one of the most bitter personal rivalries in the software industry.
Dave Duffield, Workday’s co-founder, lost his last company, Peopl eSoft, to a hostile takeover by Oracle co-founder Larry Ellison in 2004. In a recent interview with the Financial Times, Mr. Duffield, who had spent nearly 20 years building PeopleSoft into the biggest maker of software for human resources managers, vowed that he would never expose any of his businesses again to takeover by Mr. Ellison.
Along with Aneel Bhusri, another PeopleSoft executive with whom he shares the chief executive title, the 72-year-old software entrepreneur will control 67 per cent of the voting power in the company after it goes public.
The arrangement echoes other recent tech IPOs that have left founders like Mark Zuckerberg in full control of their companies after a listing. The arrangement flies in the face of standard Wall Street practice but has won strong support in Silicon Valley, where it is seen as a way to give founders breathing room to build their companies without fear of hostile acquisitions or attack from activist shareholders.
Though it has become one of the leading names among the new group of so-called software-as-a-service companies, which sell access to their technology over the Web, Workday warned in a regulatory filing that it did not expect to earn a profit for the foreseeable future. The company reported sales in the six months to July 31 of $119.5-million, up 118 per cent compared with a year before, while its net loss rose to $46.9-million from $36.3-million.
Despite the losses, Wall Street has grown increasingly comfortable in recent years with tech concerns like Workday which rely on subscription income rather than upfront sales of software. The arrangement forces them to defer some revenues to later years, making them unprofitable during periods of rapid growth since sales costs are reported immediately.
The Workday IPO will give Wall Street investors a chance to bet on a sector that has already attracted high valuations from corporate buyers. Last December SAP bought Workday rival Success Factors for $3.4-billion while Oracle paid $1.9-billion for Taleo, another rival, in February.
In one sign of potential investor demand, ServiceNow, which uses cloud computing to help companies manage resources, has seen its stock price nearly double since its offering at $18 a share in June.
Workday said it plans to sell 22.75 million shares at between $21 and $24 each, raising up to $546-million for the company. The company is backed by Greylock Partners, and has listed Morgan Stanley and Goldman Sachs Group Inc. as lead underwriters for the offering.