What Would Avast Software’s Valuation be as a Public Company?

On December 20, Avast Software filed with the SEC for an initial public offering (IPO) of $200 million in common shares. UBS Limited and Deutsche Bank Securities Inc. are acting as joint bookrunning managers and Pacific Crest Securities LLC, Morgan Keegan & Company, Inc. and Macquarie Capital (USA) Inc. are acting as co-managers for the proposed IPO. Avast promotes that they are protecting over 146 million active users and 189 million registered users. Nice installed based to talk about for an initial public offering The freemium model covers a substantial number of these users.

A Quick But Often Used Valuation Methodology for an IPO

In the interest of brevity, methods of valuing a company for IPO purpses include - Book Value, Internal Rate of Return (IRR) Profit/Sales Multiple, P/E (Price/Earnings ratio), Dunn-Rankin formula, free cash flow. In the link to the attached article, the author also talks about the asset approach, the earnings approach, and the market comparison approach. Discounted cash flow analysis would be great, but does involve a fair amount of conjecturing.

So, let’s use the price multiple approach for an Avast IPO. For the six months ended June 30, Avast reported a profit of $23 million. This was an increase from $4.4 million during the same period last year. Revenue increased 87% to $37.9 million. Double that revenue to annualize it, and assume a little growth over the second half of the year. Instead of $75.8 million, let’s say $80 million. Their total 2010 revenue was $48.5 million. This is probably still conservative since their first halve 2010 revenue was $20.2 million.

From an earlier blog, Symantec paid a revenue multiple of 5x and 4.8x for PC Tools and Message Labs, respectively in 2008. In 2009, McAfee paid a revenue multiple of 4.9x for its acquisition of MX Logic. These were all security acquisitions.

Different industries have different price multiples. The risk is different. Margins are different. A software company isn’t a steel com company, nor is it an appliance company.

Intel’s acquisition of McAfee wouldn’t be a valid comparison because McAfee obtains a substantial portion of its revenue from appliances. Ditto for any multiple that could be back calculated from the Thomas Bravo December 8 $1.3 billion proposed acquisition of Blue Coat Systems. Blue Coat obtains a substantial amount of revenue from its appliances. Bravo paid a 48% premium over the previous day’s stock closing price and about 19 percent off the highs of Blue Coat’s share price in January. http://dealbook.nytimes.com/2011/12/09/thoma-bravo-acquires-blue-coat-systems-for-1-3-billion/

And the Answer is

Using the 5x figure for Avast Software, suggests a total valuation of $400 million. This may not be unreasonable give their rapid growth. The paperwork filed with the SEC lays out a number of potential risks. But that's what this paperwork is for.

Again, the above is crude. There are multiple better methods. It does provide a rough estimate. The company is generating cash. They are profitable. As of June, they had about $85 million in the bank. Let the underwriting number crunching continue.

For a May update 

http://kensek.blogspot.com/2012/05/avast-gradually-moving-forward-with-ipo.html

To view Avast’s F-1 form filed with the SEC, go to http://www.sec.gov/Archives/edgar/data/1537133/000104746911010159/a2206699zf-1.htm

http://kensek.blogspot.com/2011/12/avast-software-files-for-200-million.html

Avast Software Files for $200 Million IPO

Avast Software filed for an initial public offering (IPO) of $200 million in common shares on December 20. They plan to use the proceeds for working capital and general corporate purposes. Avast is based out of Prague in the Czech Republic.

Avast said it may also use some or all of the money raised to invest in complementary companies, products or technologies. For the six months ended June 30, Avast reported a profit of $23 million. This is an increase from $4.4 million during the same period last year. Revenue jumped 87% to $37.9 million.

UBS Investment Bank and Deutsche Bank Securities are the lead underwriters on the deal. This initial public offering has been in the rumor mill for a while.

http://www.marketwatch.com/story/avast-software-files-for-200-million-ipo-2011-12-21

In August 2010, growth equity investor Summit Partners invested $100 million for a minority stake in Avast. http://www.avast.com/pr-growth-equity-investor-summit-partners-invests-100-million-in-avast-software.

http://kensek.blogspot.com/2010/09/avg-internet-security-2011-available-in.html

Results in 3rd Party Tests - Avast Has Mixed Results

In testing, Avast has been all over the place. In November, they came in 11th in the www.av-comparatives.org test for “Proactive Detection of New Malware”. They came in last in the av-comparatives October-November “Whole Product Dynamic Test”. G Data and Kaspersky came in first and 2nd, respectively. They came in 16th in this test for the 2nd half of 2011. They came in 8th in the August “On-demand Detection of Malicious Software” test. They scored above 90% and 80% respectively for Reactive Detection and Proactive Detection in the “RAP Averages Quadrant Apr-Oct 2011”. They’ve received VB100 awards for all tests entered in 2010 and 2011.

http://www.virusbtn.com/vb100/latest_comparative/index


OPSWAT Security Industry Market Share Leader

In the OPSWAT December 2011 report on “Security Industry Market Share Analysis”, Avast is listed as the antivirus worldwide security industry market share leader, with a 15.9% share. Avast claims on their web site that they they protect 142 million active and 187 million registered users.

http://kensek.blogspot.com/2011/12/december-2011-opswat-report-on.html


Ultimately, it'll be interesting to see how an Avast IPO fairs. Other security vendors are supposedly in the pipeline to go public.