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Vision Critical offices in Vancouver.

Rafal Gerszak/The Globe and Mail

Vision Critical, one of Canada's most successful emerging tech companies, has cleared a major hurdle on its path to an initial public offering with the sale of one of its two divisions.

The Vancouver-based company, part-owned by pollster Angus Reid and founded by his son, Andrew Reid, is selling its market research consulting division, which accounts for about one-third of revenue and employs about 20 per cent of Vision Critical's 800 employees, to MARU Group, a new company backed by British private equity firm Primary Capital Partners LLP. The deal leaves Vision Critical focused on its Internet-based subscription software business, which provides its 700-plus corporate customers – including about a third of the Fortune 500 – with the capability to conduct ongoing market research with online "communities" of customers.

The sale "is a critical stage to prepare us to go public," said Vision Critical chairman Ian Giffen. "I don't believe we could go public if we hadn't sold this business."

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Vision Critical, which generated roughly $130-million in revenue in 2015, has long been considered a top Canadian tech IPO candidate, but its two divisions had different financial characteristics that management and the board were concerned would drag on its value as a public company. Sources familiar with the company said software revenues are growing in excess of 30 per cent per year and related gross margins exceed 70 per cent of revenues, while revenue and margins for the consulting business are roughly half those levels or less.

"A research consulting business may have a value of one times revenue at the very best, where a [subscription software] company can be anywhere from three to seven times revenue," said Mr. Giffen. "The [software] company is where the real value is for our shareholders. The public markets don't value hybrid companies the way they would value a pure [subscription software] company…we've been able to raise a very good price for this deal and… whenever the time is right, we can take a pure [subscription software] company to market."

The sale process, code-named "Moonshot" internally, has been in the works for about a year. The company didn't disclose the deal value, but informed sources say it exceeds $50-million. That compares to the $47-million raised to date from investors, including OMERS Ventures and Angus Reid, the pollster whose son Andrew Reid founded the company in the early 2000s. "The proceeds of this sale will leave this company with more money in the treasury than the total amount that's ever been invested in the company," said the elder Mr. Reid, whose family owns approximately 30 per cent of Vision Critical. "The company is doing marvellously well."

Much of the proceeds will be plowed back into expanding the software capabilities as well as sales and support activities, said CEO Scott Miller. "We still have a destiny to fulfill," he said. "Our space is expanding faster than we can keep up with it."

The sale closes a significant chapter for the company. Andrew Reid started Vision Critical in 2000 building websites and virtual stores to help retailers test products and placement. In 2002 a client in the bottled water business asked him to build software that would enable it to regularly communicate online to its target market of female runners. That project evolved into the company's core software product, which it offered to others.

At the same time, his father was growing restless in retirement following the 2000 sale of his polling company, Angus Reid Group, to global giant Ipsos. Angus Reid offered to finance his son's company if he could lead it as CEO for a few years. Ipsos sued to stop Mr. Reid from violating his non-compete clause, but Mr. Reid prevailed by promising not to set up a market research business for two years and instead focus on developing the software business.

Vision Critical's software, which enables businesses to reach out to thousands of customers on an ongoing basis to gauge their views on market trends and new products, was a slow sell at first. "The customers were kind of saying, 'Wow, we get it, but we need somebody to run it for us," said Mr. Miller, a market research industry veteran from the U.S. who became CEO in 2012 and works in Toronto. So in 2006 Angus Reid recruited former employees to build a consulting business that could help customers implement the software. "There was a period of time at which they said, 'We need sophisticated research professionals to do the work on top of the platform until customers ramp, basically, and get more comfortable with it," Mr. Miller said.

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The company's turning point came with the explosion of social media in the late 2000s. Companies suddenly discovered they were no longer "controlling the customer conversation" about their brands, said Mr. Miller. With Vision Critical offering a tool that enabled them to directly communicate with customers – at a much faster rate and cheaper price than conventional customer intelligence – "that's where we really saw the accelerated growth to the concept," Mr. Miller said.

Bank of Montreal is advising Vision Critical in advance of a possible IPO. That could come as early as this year, though the market for tech public offerings has gone cold in recent months.

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