High-Tech Companies Rush to Market
As the Netplex becomes an Internet and telecom mecca, public offerings flourish
At a recent technology finance conference in Washington, more than half of the audience of 200 high-tech executives raised their hands when asked how many companies were planning initial public offerings.
High-tech companies in the Washington area are going public at a rate of two a month, industry leaders say. W. Russell Ramsey, president of Friedman, Billings, Ramsey & Co. Inc., an investment banking and brokerage firm in Arlington, Va., said last year's rate was roughly two per quarter.
Many high-tech companies in Washington are flourishing, and Wall Street is very receptive right now to technology companies, Ramsey said. The firm has handled high-profile public offerings such as Digex of Beltsville, Md., and CyberCash of Reston, Va.
Ramsey and others also say the increase is a reflection of the region finally defining itself as a mecca for Internet and telecommunications companies and finding a receptive market.
"The characteristics of [telecommunications and Internet-related] companies are just now being defined, where a year ago the definition of the region was not even emerging," said John Higginbotham, president of Spacevest, a venture capital firm in Reston, Va.
Internet access providers, telecommunications companies and software developers are leading the local surge in IPOs.
Recent public offerings in the Washington area have included Digex Inc., an Internet access provider, which raised more than $45 million, and Trusted Information Systems Inc., Glenwood, Md., a network security company, raised $41 million.
MLC Holdings Inc. in Reston, Va., which specializes in leasing and financing information technology assets and providing asset management services, filed a registration statement with the Securities and Exchange Commission Oct. 28, signaling its intent to offer 1 million shares of common stock .
UOL Publishing Inc., a Falls Church, Va.- based publisher of educational courseware for the online education and training market, also filed a registration statement Sept. 17 to offer 1.5 million shares of common stock with the SEC. Versatility Inc., a client/server software developer in Fairfax, Va., filed a statement with the SEC on Oct. 9 to offer 2.2 million shares of common stock.
There is also speculation that another Internet access provider, Erol's, Springfield, Va., is planning an IPO. However, earlier this week, Erol's chief executive Dennis Spina said the company was "not actively working on an IPO."
Kathy Clark, president and founder of Landmark Systems Corp., a software developer in Vienna, Va., confirmed her company is planning an IPO in the next 12 months.
Lightspeed International Inc., a Sterling, Va.-based developer of software for telecommunications companies, is also considering going public, according to Allen Andersson, vice president of software development for Lightspeed.
"Washington's strengths are in telecommunications, online services, Internet plumbing and Internet transportation," said Ramsey. "It's a mistake to think this is going to be a big manufacturing, semiconductor or hardware area. That's where Silicon Valley is going to grow and prosper."
"There's been a willingness on the public's part to invest in technology companies," said Pete Privateer, senior vice president of Axent Technologies Inc., a Rockville, Md.-based software company that specializes in network security. Axent raised more than $36 million through the sale of 2.6 million shares of common stock in its public offering in April. "Everybody wants to be a part of the next Microsoft."
Profitable public offerings depend on factors such as timing, luck, hype and Wall Street's perception of the company's business prospects and management team.
Henry Barratt, managing director of Blue Water Capital LLC, a venture capital firm in McLean, Va., said it's not the technology itself but the management of the company and the profitability of the company that makes people buy the stock.
"It's hard to sell the new technologies to people," said Barratt. "You have to sell them the benefits and you have to have the capital and people."
Privateer says his company had a solid foundation, high growth rates and a good management team when it went to market.
But is the hot IPO market for technology stocks causing companies in Washington to leap blindly into the public market?
Valerie Gaydos, publisher of Capital Growth Atlantic, a monthly journal of record for the financial community based in Baltimore, said companies are rushing too quickly to the public market.
"Everybody wants to go public," said Gaydos. "But the bottom line is that not every company can be a UUnet. Timing is crucial." The UUnet initial public offering raised $66.2 million in 1994.
Timing of the market is one of the most important ingredients of a profitable public offering. The value of technology stocks can fluctuate throughout the year, and companies must pick the right time to go public. For example, Digex filed a registration statement with the SEC on June 12, 1996, but held back from the market until Oct. 16, 1996.
While biotechnology companies were the hot initial public offerings, now it's the Internet, telecommunications and software companies taking the lead. Gaydos says the next wave of public offerings will not be as focused on software and products. Companies will be specializing in services and the delivery of information. n
Recent IPOs in Washington Region
CompanyHeadquartersUnderwritersValue in Millions
Axent TechnologiesRockville, Md.Merrill Lynch$36.4
Cowen & Co.
Volpe, Welty & Co.
Forensic TechnologiesAnnapolis, Md.Unterberg Harris De Santis $15.3
Telco Communications GroupChantilly, Va.Bear Stearns & Co.$61.6
Ace*CommGaithersburg, Md.Furman Selz Inc.$17.5
Oppenheimer & Co.
LCC InternationalArlington, Va.Donaldson Lufkin & Jenrette $84
Alex. Brown & Sons
Oppenheimer & Co.
Source: Ferris Baker Watts