August 2, 2004

Blackbaud's low sales may not be all bad news

Grapevine  /  Post and Courier

Selling shareholders of Blackbaud Inc. didn't fetch as much as they had hoped in the company's $64.8 million initial public offering last month, but that's not necessarily a sign of things to come.

The investors who sold shares in the Daniel Island-based company had hoped to find buyers for 9.1 million shares in the $10 to $12 range. In the end, they sold 8.1 million shares for $8 a pop.

Jeff Hirschkorn, co-founder, principal and IPO analyst for Orlando-based Current Offerings, said the early pricing is not an indication of a stock's future performance. "Pricing below talk is not necessarily a good thing, considering that indicates the banking team had trouble selling at a higher rate," he said. "However, in this market, selling below is sometimes a good thing. It creates a more attractive valuation going out. Valuations are key."

Hirschkorn thinks the market priced the stock low because of what he termed "a hard read on the firm's financials." He pointed to one of Blackbaud's chief competitors, San Diego-based Kintera Inc. "This company became public late last year and has seen its stock trade backwards due to concerns with financial stability," he said. "And that stock also priced low."

To a lesser degree, Hirschkorn said, investors do not like when insiders cash out, as was the case with Blackbaud. None of the proceeds from the IPO went to the company. "It signals lack of faith in the company going forward," he said. "We saw this in the recent IPOs from Domino's Pizza and Dex Media." Still, he said, "Blackbaud is a good company in a competitive niche and that could be a sign of success down the road."

The key now is for the company to stick to its knitting and post a couple of successful and solid quarters, demonstrating its financial stability to the market. Meanwhile, Blackbaud has set a date when it will make its first public comments about life as a public company. It will report its second-quarter financial results after the markets close Wednesday.

The company is still in its regulator-mandated "quiet period," and as a result will limit its remarks to a prepared text focused on financial results. It plans to follow up with another teleconference, including a question-and-answer session, with analysts and investors Aug. 17, when it will have emerged from the quiet period.