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SolarWinds IPO Shines

May 19, 2009| 1 min. read

SolarWinds (SWI Quote) became the first venture capital-backed company to go public in nearly a year after its initial public offering priced above the expected range, something President and COO Kevin Thompson called a "positive sign" for small companies in need of capital.

The Austin, Texas-based provider of network management software began trading on the New York Stock Exchange under the symbol SWI. The IPO priced at $12.50 a share, above the expected price range of $9.50 to $11.50 a share. SolarWinds offered 9 million shares, with an additional 3.1 million shares sold by existing stockholders.

Shares rose as high as $15.16 earlier in the session, and were lately up 18.4% at $14.80.

By pricing above its expected range, it became the third IPO to do so in the last year. Earlier this month, DigitalGlobe (DGI Quote) raised $279 million after offering 14.7 million shares at $19 a share, above its expected range of $16 to $18.

In April, Rosetta Stone (RST Quote), the language learning software provider, sold 6.25 million shares at $18 a share, above its proposed range of $15 to $17 a share.

During a phone interview after shares began trading Wednesday, SolarWinds President and COO Kevin Thompson said that the software company wasn't trying to time the market with its IPO, which has dramatically improved since hitting its recent lows in March.

"We filed back in early 2008, so as a company we've been getting prepared for quite a long time now," Thompson said. "We also don't believe in trying to time the market. Our goal is to build a large company and create a tremendous amount of value for our shareholders over time. We believe we're absolutely ripe to be a public company from an operational perspective."

Formed in 1999 and backed by Bain Capital, Insight Ventures and Austin Ventures, SolarWinds saw net income jump 64% to $22.3 million in 2008 from $13.6 million a year earlier. Revenue grew to $93.1 million last year, a 51% increase from the year before However, SolarWinds has long-term outstanding debt totaling $93.9 million from a December 2005 recapitalization by Bain Capital and Insight Ventures. SolarWinds says it expects to use the net proceeds from the offering to repay a portion of that debt. The company will also make a payment of as much as $20 million to its original stockholders, and the rest will be used for general corporate purposes, including working capital.

Thompson said that the success of SolarWinds' IPO shows that investors are hungry for more mature companies to invest in. He argues that investors are seeking out unique business stories, ones that are differentiated from a business model perspective.

"That means companies that have real scale and a significant customer base, ones that have shown an ability to grow revenue and grow at least some level of profitability," Thompson said. "You have to have shown the ability to generate profit, unlike the past where you could've had never generated any profit and you're telling a story that you'll generate a profit in two years. You can't do that now."

Thompson said that the SolarWinds IPO, the first venture capital-backed launch since Rackspace Hosting (RAX Quote) priced its shares in August 2008, is a positive sign that markets are freeing up.

"There are a number of good companies out there that need to access capital one way or another, which has been hard over the last 12 to 15 months," Thompson said. "For a private-equity or venture-backed company getting out in the software space is a good sign, and I think that will be good news for smaller companies that are trying to get venture funding, which has been hard to come by."

While he may not be the next John Chambers, the CEO of Cisco Systems (CSCO Quote) who many look to for forecasts about the health of the tech space, Thompson said that a wide range of customer types gives him a unique view of the market.

In its regulatory filing with the Securities and Exchange Commission, SolarWinds said its customers include small- and mid-sized businesses and enterprises, including more than 400 of the Fortune 500 companies. It also serves local, state and federal government agencies.

"We really do have customers of all sizes, as our technology and distribution models allow us to sell to small and large businesses," Thompson said. "We've seen momentum pick up over the course of 2009, which is a positive thing. I don't know that I'm ready to predict what will happen in the overall market, but clearly we've seen that the mood is improving at the buyer."

Thompson adds that mood has consistently improved as 2009 has rolled along, although SolarWinds is not relying on that to succeed. "We don't have to have that mood improve in order to achieve the growth targets we have," he said. "But I think it would be an absolute positive sign."

SolarWinds, Inc. (Nasdaq: SWI) had its Initial Publice Offering in May 2009.

NEWS SOURCE :www.solarwinds.com