VerticalScope Inc. is set to go public Tuesday on the Toronto Stock Exchange at $22 a share, giving the digital media company’s largest shareholder, NordStar Capital LP, a stake valued at $173-million.
That is almost three times the $60-million NordStar paid last year for Torstar Corp. (excluding unfunded pension liabilities), which owns the Toronto Star and 76 other daily and weekly newspapers across Ontario and which also included the stake in VerticalScope.
Two sources familiar with the transaction said VerticalScope was set to price the offering Monday evening near the top end of the initial range of $19 to $23 a share. That followed strong demand from investors, which placed nearly $700-million worth of orders for what originally anticipated to be a $100-million stock offering. On Monday, the company increased the size of the deal to $125-million in response to the strong demand.
RBC Capital Markets, Canaccord Genuity and National Bank Financial are leading the IPO, which is also being underwritten by TD Securities, Raymond James, Desjardins Securities, Cormark Securities and HSBC Securities. The Globe and Mail is not identifying the sources as they are not authorized to speak about the deal.
VerticalScope specializes in running websites for communities of enthusiasts of a broad range of topics including beekeeping, snowboarding, automobiles and fancy watches. The company has more than 1,200 websites, with 1.7 billion content posts and 100 million-plus active users each month, mostly in the U.S. The business generated US$61.6-million in revenue in the past 12 months and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of US$31-million.
VerticalScope has US$85-million in long-term debt and has made more than 200 acquisitions including Yellow Pages’ RedFlagDeals site three years ago. It plans to use the offering proceeds to buy other enthusiast sites in the next year that generate a combined US$20-million worth of EBITDA.
The company was founded by chief executive officer and Saskatchewan native Rob Laidlaw in the 1990s, when he was a teenager, as a web-hosting directory site called TopHosts.com. Financier Jesse Rasch was impressed by the business and the young Mr. Laidlaw and offered to partner with him.
In 1999, at the age of 18, Mr. Laidlaw dropped out of university and moved to Toronto from Regina. VerticalScope developed or bought more than 100 online media properties in power sports, auto and technology markets, as well as print magazines for auto enthusiasts such as Modified Mustangs Magazine, before selling the auto media properties to Primedia in 2007.
Mr. Laidlaw realized enthusiast communities offered attractive economics: Users generated content themselves and sites were typically moderated by individual members. The concentration of passionate users of big-ticket items drew both advertisers and e-commerce partners looking to sell to the users – and willing to pay a referral fee to the site owner.
In 2011, VerticalScope raised US$45-million from Boston private firm ABRY Partners to fuel its expansion in the area. Torstar bought out ABRY four years later for $200-million.
Torstar’s stake has now been shifted out of the corporate structure and is owned by NordStar, led by former Fairfax Financial Holdings Ltd. president Paul Rivett and businessman Jordan Bitove.
The company has had uneven revenue in the past few years: US$68.3-million in 2018, falling to under $59-million in each of the next two years. At the same time, VerticalScope was investing in a new online platform called Fora to replace the hodgepodge of software used by the various communities it bought over the years, so it purposely pulled back on monetization efforts. Since the move to the upgraded software, revenue in the most recent 12 months are up 11 per cent year-over-year.
VerticalScope is coming to market at an uncertain time for new Canadian issuers. Last week Quebec LED lighting maker LMPG Inc., formerly known as Lumenpulse Group, pulled the plug on its planned $300-million IPO citing “non-optimal” market conditions.
Several Canadian IPOs struggled this year. MDA Ltd., Boat Rocker Media Inc. and ABC Technologies Holdings all had to cut their offering sizes and prices to complete their IPOs. Last month, Saskatoon’s Vendasta Technologies Inc. halted its offering on the TSX, instead raising $119.5-million in private financing. Some Canadian companies that have gone public on the TSX since last fall have seen their shares fall well below the issue price, including Farmer’s Edge Inc., BBTV Holdings Inc. and MindBeacon Holdings Inc.
Torstar has been busy since its acquisition last summer by NordStar. It sold digital ad technology developed by Torstar’s Eyeturn Marketing subsidiary to Loblaw Cos. Ltd. and has announced new Ontario-focused ventures that include a last-mile e-commerce delivery business and an online casino.
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