After launching Canada’s biggest tech IPO in the past four years – not to mention the country’s largest software-as-a-service public offering ever – Kinaxis is an easy choice for Ottawa’s finance deal of the year.
© Cole Burston
Kinaxis CFO Richard Monkman
Kinaxis, which has its headquarters and R&D operations in the capital, specializes in cloud-based applications for supply chain management and sales and operations planning.
“I was pleased to accept the award on behalf of the company and the Kinaxis team. And I really want to stress it very much was a team effort,” says Kinaxis CFO Richard Monkman.
He adds the team included not only internal players, but also a very strong syndicate with the joint bookrunners of BMO and Canaccord Genuity, auditors KPMG, and Dentons, the company’s principal law firm.
“Everybody just stepped right up to the plate, with this tight timeline, and executed,” says Mr. Monkman.
Going public was an option Kinaxis chose carefully.
“The company never needed to go public in so far as it was a profitable company and it had lots of cash on the balance sheets,” says David Wismer, managing director at BMO Capital Markets.
“In addition to that, there were very patient shareholders involved. So the combination of those three things meant that there was never an impetus or requirement to do something quickly.”
In the past year, however, conditions changed somewhat, with the company dramatically expanding its sales force and moving into additional verticals.
There were also shareholders willing to sell a portion of their ownership stakes, prompting a share buy-back and using a good portion of the existing cash balance.
The time seemed ripe for an IPO in early 2014, when Kinaxis gained the prestigious position of market leader in Gartner’s Magic Quadrant assessment.
“We have that very strong industry recognition,” says Mr. Monkman. “And we thought it would be very well coupled with the market recognition of being a public company.”
He says they started early on to “layer in the building blocks,” including such things as changing contracting practices, strengthening tax filing, preparing the banks and switching over to International Financial Reporting Standards.
“I’m of the view that you can never do enough planning to get ready for the IPO,” says Mr. Monkman.
The hard prep work only intensified in the weeks leading up to the public offering, when the team went on a “road show” to sell the Kinaxis story to investors.
“I was on the road with the management team, who did a great job meeting over 100 institutional investors, which is a gruelling couple of weeks. They were in 10 cities in 11 days,” says Mr. Wismer.
“You have to sleep when you can sleep,” Mr. Monkman says with a laugh, describing long days of air travel and meetings.
But, he says, the hard work was worth it, and the Kinaxis message was well-received by investors.
“Here we are growing in the mid-twenties per cent, we’re in technology, we’re absolutely a growth player … And we’re also generating and we have a track record of sustained profit,” he says. “So our road show wasn’t one many companies come out with. We have a story that we can pitch to the growth players and we have a story we can pitch to the value players. No one had seen this mix before.”
As with any IPO, risk enters the picture.
“The period of time between you choosing to do the IPO and getting it done, what happens in the equity markets? In this particular case, there were unfortunately a couple of other software-as-a-service companies that began to trade poorly in and around the time we were marketing this IPO, so that was also a challenge,” says Mr. Wismer.
The drop in the SaaS index threw a wrench in their original plan to price the shares in the range of $14 to $16.
“We ended up pricing the IPO at 13 (dollars per share), but of course it’s traded up 40 per cent since then, so it’s been a real success,” Mr. Wismer says.
He says the strong demand for a recent secondary offering of common shares partly stems from some of those initial meetings now bearing fruit.
“Their outlook is very strong, consistent with what management said during the IPO as well as on subsequent investor calls,” says Mr. Wismer. “They have a big market opportunity in front of them and they have the leading solution in their market. They’re growing in new verticals, such as automotive and consumer packaged goods, to name a couple, and so their future looks quite bright.”
Mr. Monkman agrees.
“We’ve now issued two quarters, post-IPO, and have exceeded expectations,” he says.
Local employees: 170
Year founded: 1984
Key clients: Cisco, Qualcomm, Ford, Nikon
Increase: 60 per cent
2014 Q3 revenues:
Increase from 2013 Q3:
14 per cent
2014 Q3 profit:
2013 Q3 loss: