Ceridian HCM Holding Inc., a human-resources software company run from Toronto, made a splashy debut on New York and Toronto stock exchanges on Thursday, as the stock surged more than 40 per cent and the company added about US$1-billion to its market capitalization.
Ceridian HCM’s initial public offering was priced at US$22 a share, valuing it at about US$3-billion. The valuation marked a record debut for a tech company on the Toronto Stock Exchange. In New York, the shares rose 42 per cent, US$9.21 to US$31.21, to value the company at US$4.1-billion. In Toronto, the stock closed at $40.52. The IPO, alongside a separate financing, is set to generate more than US$600-million for Ceridian.
The first-day surge indicates a continued appetite among investors for software companies posting rapid growth. Ceridian’s IPO comes close to three years after that of Ottawa-based Shopify Inc., whose stock jumped about 50 per cent on its first day of trading to a market valuation of roughly US$3-billion. Shopify is now worth about US$13-billion.
Ceridian HCM is a hybrid of technology’s past and future – and an indication of Canada’s increasing clout in the sector. Ceridian was established in the early 1930s by IBM, but by the 2000s, it was a fading payroll processing firm with outdated technology. It was bought out by private equity in 2007. By 2012, however, Ceridian was effectively taken over by Dayforce Corp., a Toronto cloud-software startup that was taking on the human-resources business. Ceridian’s private equity backers bought Dayforce for about US$100-million and soon after installed David Ossip, a Dayforce co-founder, as Ceridian’s chief executive.
The company’s headquarters are nominally listed in Minneapolis, but the most of the senior management, including Mr. Ossip, are based in Toronto. About one-quarter of the company’s 4,200 or so workers are in the Toronto region.
“I’m delighted we’ve been able to have this amount of success, largely out of Canada,” Mr. Ossip said in an interview on Thursday. “Our hope is other Canadian companies follow our lead and build organizations that have true scale and compete on a global basis.”
Ceridian remains a fraction of the market size of Automatic Data Processing Inc., the Roseland, N.J.-based industry leader valued at about US$53-billion. Mr. Ossip, however, was confident when asked about the competitive landscape and his company against ADP. “We’re a tech company,” he said. “We’re the innovators.”
Ceridian posted US$751-million in revenue in 2017, up about 7 per cent from US$704-million in 2015. Its 2017 net loss was US$9-million, down from US$93-million the year before. In both 2016 and 2017, the company’s income statement was weighed down by about US$90-million in annual interest payments.
The financial picture is changing. The IPO cash will be used to redeem the US$475-million principal of the company’s outstanding 11-per-cent senior notes due in 2021 and pay a portion of the interest.
It is Ceridian’s underlying financial numbers – the promise of Ceridian’s Dayforce software – that excites investors. Two-thirds of the company’s sales now come from cloud computing-based human resources software, up from 54 per cent in the first quarter last year.
Dayforce started with software for workers’ pay, benefits, and time management. It then expanded into performance, compensation and other HR areas. It is now working on software for succession planning and expenses management.
“There’s a tonne of growth opportunities for us,” Mr. Ossip said.
In preliminary first-quarter 2018 figures, filed as part of the IPO, the company’s cloud revenue was roughly US$124-million in the three months ended March 31, up about 36 per cent from US$91-million a year ago.