Blackbaud IPO Falls Short of GoalKyle Stock / Post and Courier
Executives, Investors Make 30-40% Less Than They'd Hoped
Blackbaud Inc.'s stock posted a gain on its first day of public trading, but the share price still ended the day well below what the company and its Wall Street allies had expected when they first planned to go public.
On July 1, Blackbaud and its underwriters said they planned to sell 9.1 million shares at $10 to $12 a share. But when the stock was actually offered to select investors on Wednesday, only 8.1 million shares were bought, at $8 each.
The executives and investors who sold their portions of the Daniel Island software company made a total of $64.8 million, 30 percent to 40 percent less than they had hoped for. About 7 percent of that – $4.5 million – went to underwriting fees.
In public trading Thursday on the Nasdaq, Blackbaud's shares rose to $8.55, a 6.9 percent increase from the offering price. About 3.8 million shares changed hands. In comparison, Nasdaq's computer sector index, which includes both hardware and software makers, rose 1.3 percent for the session.
"This is still a very good company, but current market conditions are poor," said Scott Shubert, managing partner of Blue Granite Capital LLC, a Charleston-based investment firm. "The preferred investment is not going to be an IPO right now; it's going to be a well-known company and probably one that pays a dividend."
The shareholders whose stock made up the IPO said they could not comment on the offering because the Securities and Exchange Commission has mandated a month-long "quiet period." The investment banks that acted as underwriters of the deal, J.P. Morgan Securities and Bank of America Securities, also were not permitted to comment.
Selling shares to the public is the dream of many tech-focused startups. For Tony Bakker, the founder of Blackbaud who incorporated the company in 1982, Wednesday's float was a long time coming. He and his family were the biggest beneficiaries of the offering, grossing about $42 million on the 5.3 million shares they put up for sale.
The company's biggest shareholder, Hellman & Friedman Capital Partners III, was supposed to participate in the offering but, in the end, opted out. The San Francisco-based venture capital firm bought a controlling stake in Blackbaud in 1999 and holds 62.5 percent of the company. Hellman & Friedman may have opted out in part because the software maker hit the market at a bad time, following jitters propagated by war, interest-rate hikes and a string of worse-than-expected earnings from tech companies.
The Nasdaq Composite Index fell to its lowest point all year Wednesday when the Blackbaud offering was priced. About 35 percent of this year's IPOs have priced below their target range, according to IPOVitalSigns.com, which tracks public stock offerings.
"Timing is everything with IPOs and it's just a tough environment in the market right now," said Blue Granite's Shubert. "Everybody's nervous right now and the market is pretty unforgiving."
Kintera Inc., a San Diego-based company that, like Blackbaud, develops software for nonprofits, was shooting for $8 to $10 a share when it went public in December. Its shares were offered at $7. They traded as high as $18 this spring but dropped back almost to their debut price this week.
Jeffrey R. Hirschkorn, an IPO analyst for online research firm CurrentOfferings.com, said Blackbaud's low offering price was a sign that "overkill may be starting to set in for initial public offerings."
The IPO has no effect on Blackbaud's operations or earnings, because it was its shareholders – not the company itself – who cashed out. Along with Hellman & Friedman, a number of the company's other major shareholders who originally had planned to contribute shares to the offering apparently changed their minds before the deal closed.
For example, according to an earlier filing with the Securities and Exchange Commission, Blackbaud president and CEO Robert J. Sywolski had indicated he planned to sell almost 1 million of his 3.5 million shares. He didn't sell any. Hellman & Friedman had planned to sell 4.3 million of its 26.5 million shares.
Blackbaud, which develops software to help nonprofit groups manage their finances, has become a star of the Charleston economy and one of the area's largest employers since Bakker moved its headquarters here from New York in 1989.
Ernest Andrade, who courts tech businesses for the city's Charleston Digital Corridor initiative, said Blackbaud's path to an IPO is a "remarkable success story" for the company and the region's economy. Blackbaud bought its biggest competitor, Indianapolis-based Master Software, in 1997, doubling its customer base. The next year the company posted a 33 percent return, its best profit margin before or since. In 2002, it reported $15.6 million in profit. And last year, Blackbaud's revenue increased 12 percent, although the company lost $478,000 because of new accounting rules that required it to factor employee stock options into its expenses.
In the first quarter of 2004, Blackbaud reported $4 million in income, compared with a $51,000 loss in the year-earlier period. Sales were up 15.4 percent. The company now has about 780 employees and 12,500 customers. There are almost 3 million nonprofits in the world, according to Giving USA. Blackbaud has added about 1,300 clients a year since 2001. It has said the biggest threat to its business is a bigger software company moving into its market territory.
The last locally based company to launch a sizable IPO was Polymer Group Inc., which sold $190 million of its stock to public investors in 1996. The company emerged from bankruptcy early last year and closed at $13.10 per share on the Nasdaq Thursday.