AVG Technologies Proposes Initial Public Offering (IPO) on NYSE

February 2, 2012 Addendum from Reuters - AVG Tech shares fall on market debut

“Shares of AVG Technologies NV (AVG.N), the maker of free PC and mobile anti-virus software, fell 19 percent on their market debut as investors grow wary of high valuations for newly listed technology companies.”

AVG shares closed at $13, which would mean a company valuation of $707 million. Shares had been sold to investors at $16. For the complete article:

www.reuters.com/article/2012/02/02/us-avgtech-idUSTRE8112EZ20120202

If you scroll down further in this blog, my estimated valuation in mid 2010 was about $750 to $800 million. I increased this to over $1.2 billion earlier this year (more recent revenue data).

January 13, 2012 update - AVG Technologies announced on January 13 that it has filed a Registration Statement on Form F-1 with the U.S. Securities and Exchange Commission in connection with the proposed initial public offering (IPO) of its ordinary shares. AVG has applied to list its ordinary shares on the New York Stock Exchange under the symbol "AVG."

http://www.marketwatch.com/story/avg-technologies-announces-filing-for-proposed-initial-public-offering-2012-01-13

This is a change from previously when they were talking about going doing an initial public offering on the London Stock Exchange or Warsaw Stock Exchange. According to Reuters, AVG Technologies has filed for the IPO for up to $125 million. The bookrunning managers for the proposed offering are Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Goldman, Sachs & Co. Co-managers for the proposed offering are Allen & Company LLC, Cowen and Company, LLC and JMP Securities LLC. AVG had revenues of $218 million in 2010 and $198 million through Q3 2011.


Original Blog From August 2010

Last week, it was announced that “AVG Technologies has appointed Goldman Sachs, JP Morgan, Morgan Stanley and UBS as bookrunners for its upcoming IPO (initial public offering), with Jefferies acting as co-lead manager. The software firm is understood to be planning a primary listing in London to access institutional investors in the UK, but marketing will focus on American investors as AVG’s brand is strongest in the US”. http://www.ifre.com/equities-avg-appoints-for-uk-ipo/598999.article.

IPO Date?

So when will internet security provider AVG Technologies go public on the London Stock Exchange? – No official date has been announced. Earlier this year the company talked about going public during the latter half of 2010. The Prague Post had a fairly extensive chat with the company in April (Chasing a Billion Dollar Market)about AVG in general, and this was brought up. One question is whether the IPO will occur before or after the next major release of the company’s product lines. Going public before release could allow for a nice uptick, should the new version be favorably reviewed by the marketplace.

IPO activity has been relatively slow during calendar year 2010. Activity for initial public offerings seems to be increasing during the second half of 2010 versus the first half.

A number of competing companies will introduce new versions in the Q3 timeframe. Symantec has Norton Internet Security and Norton Antivirus in beta. Trend Micro’s Virus Scan API is in beta. McAfee Total Protection 4.5 is in beta. BitDefender Total Security 2011 and their Mac security product are in beta. Panda has rolled out their 2011 product line. Webroot has rolled out their consumer Internet Security suite. This isn't a comprehensive list. In order to be part of boxed promotions in the retail channel for their internet security suite, AVG is going to have to release something by early October, at the latest.

Market Capitalization

Valuating a software company for an IPO is always interesting. The market comparison approach was recommended in an article in Corporate Finance Review. In this approach, the company going public is compared to comparable publicly traded companies or recent transactions involving similar private companies.

A second approach they wrote about is using a revenue multiple of similar public software companies.

Potential comparable public traded companies to compare AVG Technologies to could include McAfee, Symantec, and Trend Micro. Potential reasons these aren't perfect: McAfee - Broader product line. They promote that they scale to the enterprise. They sell appliances, SW, and Software as a Service, which makes them a SW and HW company. They are a pure security play, however. Symantec has a broader product line than AVG. They promote that they scale to the enterprise while AVG is an SMB play. Symantec isn’t just a security company (Veritas acquisition, for example. Trend Micro has a broader product line. Their business products scale to the enterprise. Many of AVG Technologies’ competitors are private, so "numbers" are unavailable. So these three companies are probably the best comparable ones.

The author also discussed the asset approach (SW companies don’t possess a lot of physical assets) and the earnings approach. He wasn’t fond of the latter for a variety of reasons, including: the company may have been managed for growth, the company may have been focused on developing the technology, and valuation models based on earnings are highly sensitive to assumptions made. “Valuing Software Companies: One Size Does Not Fit All” Corporate Finance Review September/October 2007. http://www.thevenemareport.com/pdfs/3-Valuing%20Software%20Companies.pdf


Doing a comprehensive discounted cash flow analysis (while fun for quants) can be difficult. For AVG, there’s the free product, where revenue comes from someone other the home user. AVG gets revenue from the toolbar/Yahoo! (no, you’re not forced to use the Yahoo as your search engine). The “consumer paid” product line. Revenue from 3rd party partners who let individuals who want to download AVG Antivirus Free Edition upgrade to a paid product in exchange for purchasing something from the 3rd party. The “business paid” product line. The OEM business (deal with WatchGuard, for example http://www.watchguard.com/news/press-releases/wg438.asp ). There are the antivirus engine and the behavioral engines. Deals with ISPs. The Data Feed Solution (aggregate web activity of over 40mm AVG users marketed to 3rd parties) More detailed descriptions are on http://www.avg.com/us-en/gsa-solutions.

Other methods – Book Value, Internal Rate of Return (IRR) Profit/Sales Multiple, P/E (Price/Earnings ratio), Dunn-Rankin formula, free cash flow.

So what will the market capitalization of AVG Technologies be? (Note that the below uses no proprietary information!)

In October 2009, TA Associates paid more than $200 million for a 25% stake in AVG. “European Private Equity in Review”, full year 2009 edition at www.mergermarket.com. http://www.avg.com/us-en/press-releases-news.ndi-224903. This suggests that at the time of sale, 100% of the equity in AVG had a worth of about $800 million US.

In 2008, Symantec paid a revenue multiple of 5x and 4.8x for PC Tools and Message Labs, respectively. In 2009, McAfee paid a revenue multiple of 4.9x for MX Logic. Using a 5x multiple suggests a market cap of about $750 million US for AVG in early 2009. http://blog.updataadvisors.com/2009/11/05/avg-technologies-rakes-in-big-multiple-on-small-revenue/.

End of year 2009 revenue data? Unavailable. 2010 year to date revenue data? Publicly unavailable. It’s information like this that AVG, and the investment firms and bankers they’re partnering with are probably taking into “the room”, along with business projections for the next several years (with and without acquisitions), in order to arrive at an appropriate capitalization/valuation. Doing the math, and having an initial share price below what the math suggests is a way for a quick rise in price on opening day. An argument could be made that this leaves money on the table, however.

It will be interesting. Conversations may get intense. Beverages of all sorts will be consumed.

September Addendum

According to a Reuters article dated September 15, “Czech AVG's IPO to be worth 400-800 mln EUR” AVG Technologies Initial Public Offering “IPO” may take place in the first quarter of 2011. This is a change from what AVG has been saying. Previously, the London Exchange (UK) was mentioned as to where the company was going to be listed. Now it may be on the Warsaw exchange “and one other”. http://www.reuters.com/article/idUSWSF00947520100915

This differs from a September 12 Financial Times article where “bankers have signaled they are aiming for an autumn listing.” “UK tech sector poised for deal flurry” http://www.ft.com/cms/s/2/eed0f540-be9c-11df-a755-00144feab49a.html

The recent security technology acquisitions in North America may have contributed to the IPO not taking place third quarter

Bitdefender issues ‘H1 2010 E-Threats Landscape Report”

One bad Trojan is all it takes. For the first half of 2010, Trojan.Autoruninf.Gen accounted for over 11% of worldwide malware infections. According to the report’s contributors, the autorun technique is used by worm writers as a means of spreading their evil creation through mapped network drives or removable USB media, for example. Internet security providers had their work cut out for them.

The 33 page report is an interesting look backwards at the first half of the year. It’s vendor neutral. It’s actually a quick read with a number of graphics. For those who want a nice summary (if nice is the word), the report is worth downloading. This report isn't a "how to protect yourself" publication. The report looks at:

• Malware Threats in Review
• Spam and Phishing
• Phishing and Identity Theft
• Vulnerabilities, Exploits and Security Breaches

Other techniques talked about in the white paper besides Trojans that were used heavily included in the first half of the year included instant messaging worms and rogue AV software.

China and the Russian Federation have the negative distinction of being the predominant hosts for malware during the first ½ of 2010, at 31% and 22% respectively.

For Facebook® users, it was Koobface that wormed its way into the 500 million member community. Facebook Friends would find themselves receiving what looked to be a URL to a video page. Instead it would lead to an infected executable file.

Clickjacking was also a source of problems for the Facebook community as was deployment of adware via third-party rogue applications for Facebook®.

The US had its own negative claim to fame in the study. 28% of spam distribution by point of origin came from the US. China was distant second at 5%.

There are a few predictions for the latter half of this year.

• Botnet activity may increase
• Rogue software (particular AV) will trend upward
• Social networking sites such as Facebook will continue to be targeted
• In the Mobile OS world, threats will still be a rarity. However, Symbian, because of its 44% share, is the most likely target

The full report is available at http://www.bitdefender.com/files/News/file/H1_2010_E-Threats_Landscape_Report.pdf

OPSWAT Report on Worldwide Antivirus Application Market Share

On July 7, OPSWAT, Inc. published a report on “Worldwide Antivirus Application Market Share”. The results may not mesh completely with the results published by the vendors themselves (surprise!). The study period was January through May 2010. Note that these are antivirus deployments, not internet security suite deployments.

By product, the top 5 Windows antivirus deployments over the study period, by product were from los Free Amigos (Avast!, Avira, and AVG Technologies) and Microsoft.

• avast! Free Antivirus 11.45%
• Avira AntiVir Personal - Free Antivirus 9.19%
• AVG Anti-Virus Free 8.6%
• Microsoft Security Essentials 7.48%
• avast! Antivirus 5.4%

The order of the top 3 may be surprising to some people since on CNET’s download.com sight the typical weekly download order for the top three is AVG, followed by Avira and Avast. Download.com isn’t the only download site for these vendors.

The top 5 Windows antivirus market share leaders by vendor for the same period were

• AVAST Software 19.14%
• Avira GmbH 11.39%
• Symantec Corp. 10.06%
• Microsoft Corp. 9.29%
• AVG Technologies 9%

A more comprehensive listing can be viewed on the links below.

The vendor share reflects both paid and free AV, business and consumer. So the Symantec data includes both the Norton and Symantec AV brands. It does not include PC Tools, which they own. AVG Technologies drop in ranking from the product deployment table to the vendor deployment table relative to that of Avast! And Avira may signify that a much higher proportion of AVG’s installed base is their free software compared to the other two companies.

European vendors comprised 52% of the deployments, and North America 31%.

The press release for the above can be viewed at http://www.opswat.com/media/news/opswat-issues-groundbreaking-report-on-worldwide-antivirus-application-market-share

The complete report can be viewed at http://www.oesisok.com/news-resources/reports/worldwide-antivirus-market-share-report%202010

Both of these provide additional statistical details and methodology.