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Report on Business Caisse set to book huge gain if IPO of Montreal software firm Lightspeed flies

Dax Dasilva, founder and CEO of Lightspeed, poses for a photograph at the company offices in Montreal, Que., on Nov. 9, 2018.

Dario Ayala/The Globe and Mail

A successful initial public offering by Montreal software firm Lightspeed POS Inc. could deliver a nine-figure gain for the Caisse de dépôt et placement du Québec, its largest shareholder.

Documents filed as part of Lightspeed’s IPO process Friday revealed the Quebec investment giant holds 29.49 million shares in the 14-year-old firm, which provides cloud-based software for retailers and restaurants to digitally manage point-of-sale and back-office functions on a range of computerized devices. Lightspeed hopes to price the offering at between $13 and $15 a share and raise $200-million. That means the Caisse’s stake – which comes with a board seat – would be worth $413-million if the underwriters can secure a mid-range $14 share price.

That would be 80 per cent more than the estimated $230-million the Caisse paid for its stake in Lightspeed in two transactions in 2015 and in 2017. In the latter deal it bought out the stake of Accel Partners, turning heads in Canada’s venture community. It was one of the few times a big Canadian investor had bought out a Silicon Valley venture capital firm, and followed a process initiated by the Lightspeed board after it received several unsolicited expressions of interest from suitors. Accel was more keen to sell than Lightspeed founder and CEO Dax Dasilva and when the Caisse emerged as a prospective financier, that became the preferred option in order to keep the company Canadian, Mr. DaSilva said at the time.

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The prospectus revealed Mr. DaSilva holds 16 million multiple voting shares, which will leave him with just under 50-per-cent voting control and a stake worth more than $200-million if the underwriters can hit the pricing goal.

The Lightspeed IPO is also the first test of the Caisse’s recent strategy to make big but manageable bets on Canada’s teeming startup sector. The Caisse, which got burned when some tech investments soured during the dot-com bubble, has returned to the Canadian tech space in a big way in recent years, making investments in the tens of millions of dollars or more in some of Canada’s most promising technology companies. Those include online travel firms Hopper and Plusgrade LP; meeting room booking service Breather Products and smart thermostat maker ecobee. In addition to being one of the few Canadian-based investors to write such large cheques for emerging tech firms, the Caisse, which had $309.5-billion in assets as of Dec. 31, is also one of the largest backers of Canadian venture capital firms: It recently committed $100-million to a new growth fund from Montreal’s iNovia Capital, another Lightspeed investor.

Underwriters Bank of Montreal, National Bank of Canada and J.P. Morgan Securities are leading the Lightspeed offering. On Friday, the group added Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, Raymond James and Bank of Nova Scotia to the syndicate. They will market the offering to investors across North America starting Monday and hope to price and close the deal by mid-March, after which it would begin trading on the Toronto Stock Exchange.

Lightspeed generated US$72-million in revenue during 2018. Revenue in the quarter ending Dec. 31 was US$20-million, up 33 per cent from the same period a year earlier and in line with growth over the past few years.

However, the company, like many fast-growing subscription software firms, also generated heavy losses. It posted a net loss of US$98-million in its fiscal year ended last March 31 and an operating loss of US$21.9-million.

Lightspeed’s software is used in more than 47,000 customer locations in about 100 countries and the company handled US$13.6-billion in gross transaction volume last year generated by clients on its cloud software platform. The company has high hopes for a new payments offering to generate additional revenues.

The Lightspeed IPO comes ahead of an expected slew of high-profile public filings from Silicon Valley heavyweights this year, including Uber Technologies Inc., Lyft Inc., Palantir Technologies Inc. and Slack Technologies Inc.

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