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Evertz hopes TSX gives it a profile for growth

Thursday, June 29, 2006

ANDREW WILLIS

Most companies go public simply because they need money. Other times, there are founders who want to cash in.

Then there are Canadian tech players, such as Evertz Technologies, which sell shares to the public as a way of announcing to the world that they've arrived.

Evertz is a Burlington, Ont.-based firm that makes the hardware broadcasters use to send high-definition TV over conventional cable and the Internet. The 400-person firm was fabulously successful as a private enterprise.

CEO Romolo Margarelli and chairman Doug DeBruin took control nine years ago, after successful careers at Leitch Technologies, and proceeded to win over customers that include all the major U.S. networks and overseas players such as Polish Television and ESPN Singapore. This customer base translated into a $39.8-million profit on sales of $141.2-million last year, with sales soaring at a 51-per-cent annual clip since 2002.

Evertz could afford to fund its growth plans with the cash it was generating. The company's executive team did need a bit of cash to buy out the remaining stake of founder Dieter Evertz, who first opened the doors 40 years ago, but this could have been done without the fuss and bother that comes with going public.

But credibility had become a recurring issue for Evertz as it tried to win new clients, such as the major U.S. telecom companies that plan to load TV signals on their phone lines. In simple terms, global companies such as AT&T were leery of striking 20-year technology supply agreements with an obscure hardware company, from a city they'd never heard of.

(Evertz's sales team long ago learned to explain they are not based in Burlington, Vt., when arranging head-office visits for potential clients.)

An IPO, which brings trappings such as an investor and analyst following, was seen as a way to give Evertz a sense of both presence and permanence. So lead underwriters BMO Nesbitt Burns and RBC Dominion Securities were signed on, along with Genuity Capital markets and Raymond James, and a marketing campaign began.

Evertz promptly ran into the worst stock selloff in years. Company managers held 80 meetings and road shows over nine days at the same time the sky was falling on equities and the entire IPO market was very much in question.

Three other larger offerings, income trusts from Standard Radio and Big Country Energy Services and Wilkinson Good Neighbour Communities REIT, were put on hold in the face of the carnage. Miranda Technologies, a stock that had its debut last year and is seen as comparable to Evertz, was on a roller-coaster ride, down 16 per cent at one point.

But the marketing effort persisted, and the market came out the other side of the storm. Tech stocks in particular picked up late last week, just as underwriters started taking IPO orders. And at week's end, Evertz was able to sell shares at $10.25, the mid-point of the $9.50 to $11 target range set by the underwriters.

Evertz raised $67-million, with four times more demand than there was stock available, and the stock will soon start trading on the Toronto Stock Exchange.

Of that total, the company will get $37-million to fund R&D, and potentially make small acquisitions. As part of the IPO, Mr. Margarelli and Mr. DeBruin agreed not to sell any Evertz shares for at least two years.

Other Canadian companies have gone public in part to raise their profile with a U.S. audience -- that was part of the motivation for the Miranda Technologies and March Networks IPOs last year.

It's not a risk-free strategy, as even one quarter of bad numbers can hammer a stock price and taint a public company's image. But for Evertz, a debut on the TSX stage is part of a strategic push to become a bigger player in high-definition TV.

Quiet season for IPOs

It promises to be a rather quiet summer for IPOs, as a result of the springtime storm in the markets.

The one common stock offering that's attracted the Street's attention comes from Secunda International, a Halifax-based player that owns 14 of the rough-weather boats that supply offshore oil rigs. Genuity Capital is leading this deal, with a seven-dealer supporting syndicate, the reason it is turning heads is that Secunda represents a change from the all-income-trust, all-the-time stream of IPOs that hit the market earlier this year.

If Secunda, launched last week, and Mitel Networks, another common stock IPO than filed its paperwork in May, can entice investors, then the whole dealer community will be tempted to try even more common stock offerings, rather than focus exclusively on flogging trusts.

awillis@globeandmail.com

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