Kinaxis’ early investors sell shares as lockup expires

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Long-time backers of Ottawa software star Kinaxis Inc. are wasting no time selling down their stake in the company following its $100-million initial public offering on the Toronto Stock Exchange last June.

Before the IPO, TechnoCap I, LP and HarbourVest International Private Equity Partners III – Direct Fund LP held a combined 63 per cent of the company. They sold that down to 33 per cent, selling 3.9 million of their combined shares in the IPO for $13 apiece.

The stock has had a nice run since then as more investors have learned about the company's impressive supply chain management software, which it sells as a monthly service to blue chip mega corporations. It closed Monday at $19.11. Early Tuesday, HarbourVest and Technocap announced they will sell another 2.5 million shares at $18.35 apiece in a $46-million bought deal co-led by BMO Nesbitt Burns Inc. and Canaccord Genuity Corp., who were joint book-runners on the IPO. The lockup period on insiders expires on Dec. 8, and they expect the offering to close eight days after that. Once the deal is done, HarbourVest will hold 8.7 per cent of Kinaxis' stock and TechnoCap will hold another 13.8 per cent.

Big secondary offerings on the heels of an IPO can send warning signs to the market, as investors don't like to see major shareholders selling big stakes so soon after companies go public. That fate seems to have struck Canadian tech company Halogen Software Inc. after backer JMI Equity sold nearly half its stake in the year after its May 2013 IPO. Halogen stock has traded well below its $11.50 offer price for the past eight months.

But Kinaxis and its two private equity backers deserve some credit. The two selling funds have held their stakes in Kinaxis for an unusually long time for private equity firms – since at least April 2000, when the company, then private and known as WebPlan Corp., raised $33-million in a preferred share financing. HarbourVest bought in at that time, while TechnoCap was already an investor. It's been a bit of a slog since then for the private investors, as the company tinkered with its business and pricing model for years to wring the best value from its acclaimed software, known as RapidResponse.

Kinaxis seems to have arrived at the right formula, and given the enthusiastic reaction from investors to the IPO, the secondary shouldn't have a lasting drag on the stock. With the stock averaging less than 11,000 shares in volume on the Toronto Stock Exchange as institutions including Fidelity (which owns 3.5 million shares) hold on to their interest in the company, a little liquidity will likely help the stock.

"We believe this reflects the market's confidence in our business and strong continued demand for our stock," said chief financial officer Richard Monkman in an e-mail. "The Company is very supportive of the transaction as Harbourvest and Technocap have been long term investors in Kinaxis, and will continue to be following the close of the deal. We also believe this will enhance ongoing liquidity."