Avast Gradually Moving Forward With IPO

July 12 - See an update at 

http://kensek.blogspot.com/2012/07/avast-files-for-90-million-initial.html

Avast is gradually taking the steps to undergo an IPO (Initial Public Offering) on the NASDAQ exchange as AVST.  They filed a second amendment to their F-1 with the Security Exchange Commission on May 7.  The amended F-1, 150 plus pages of reading, including 23 pages of risk factors.  Three years of financial statements are included.  2011 revenue was $82.1 million, a nice 69% increase over 2010’s $48.4 million in revenue.   Avast promotes that they have around 160 million users of their products.  According to the OPSWAT 2012 March “Security Industry Market Share Analysis”, Avast has the top spot, with 16.3% of the market.

http://www.sec.gov/Archives/edgar/data/1537133/000104746912005415/a2209210zf-1a.htm

 

Avast has also now opened a hiring req for a SEC Reporting Manager, operating  out of their San Francisco Bay Area office.  This means Avast has  to be getting serious about the IPO ;).  “The individual in this critical, hands-on position will be based in the San Francisco Bay Area, report to the CFO and have responsibility for compliance with SEC reporting requirements, including preparation of Forms 20-F and 6-K, and Sarbanes-Oxley”.

This person will be traveling to Prague occasionally.  When the financial people from Prague travel to the Bay Area, they will be able to find Czech food http://www.bayczech.com/useful/restaurants/  though there are some rather nice restaurants in the Bay Area!  Foodies are usually happy when they visit.

 No new rumors as to when the IPO will take place. No sightings of executives in hoodies on Sand Hill Road in Menlo Park, or having breakfast at Burk's in Woodside.  Rumors of sightings at mid Peninsula Starbucks.  The date (IMHO) will shift after  Avast people and their external “smartest guys in the room” make any adjustments based on   analysis of the Facebook IPO. "Pops" are nice on the first day of an offering and neither Facebook nor their Prague based competitor AVG Technologies, had these  on their first days. 

http://kensek.blogspot.com/2012/01/what-would-avast-softwares-valuation-be.html

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

http://kensek.blogspot.com/2012/03/march-2012-opswat-report-on-worldwide.html

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

Jan 2012 - AVG Technologies Announces Filing for Proposed Initial Public Offering (IPO)

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

My estimated valuation in a July 26, 2010 blog, using a revenue multiple model, was about $750 to $800 million. Within 7 to 12 percent of the first day closing price! I increased this to over $1.2 billion earlier this year with more current revenue information. Whoops. The wonders of valuation models.

January 13 2012 update - AVG Technologies announced on January 13 2012 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 having an initial public offering on the London Stock Exchange or Warsaw Stock Exchange. According to Reuters, AVG Technologies has filed the IPO for up to $125 million. 2010 revenue was $217 million. Revenue through Q3 was $198 million.

A quick valuation? Assume total revenue for 2011 will end up being $264 million (4/3 x 198). Using a 5x multiple (typical for some other security software valuations), the total valuation of AVG could be around the order of $1.3 billion.

Some AVE revenue figures for 2008, 2009, 2010, and 2011 (you'll have to expand the screen or try clicking on the graphic below). These are from the F-1.



http://www.sec.gov/Archives/edgar/data/1528903/000119312512011146/d218946df1.htm



Original Blog January 11 2011 ---------------------


November 2011 rumors from a Brenon Daly blog - the451group.com . "Several sources have indicated that both AVG Technologies and AVAST Software have picked their underwriting teams and should be filing prospectuses in the coming weeks." http://blogs.the451group.com/techdeals/ . This may be a case of Daly having too much time on his hands.

Initial Public Offering (IPO) plans shelved - see http://kensek.blogspot.com/2011/02/avg-technologies-sets-pricing-on-235.html - February 12 update

For AVG Technologies in 2010, the acronym IPO appears to have stood for “Is Put Off” temporarily or “Is Postponed Only”. After telling the Prague Post on September 29, that “there has been no decision made by the shareholders or anyone else to list in Poland or Prague or anywhere else." http://www.praguepost.com/business/5854-avg-boosts-product-ipo-vague.html there was pretty much been a clamp on news about the IPO. This was in response to an article that November 10 was the IPO date. http://kensek.blogspot.com/2010/09/avg-technologies-ipo-to-appear-on.html

A Q1 initial public offering could make sense for AVG Technologies. In a September 15 Reuters article, “Czech AVG's IPO to be worth 400-800 mln EUR”, Q1 was mentioned as the potential IPO date.

http://www.reuters.com/article/idUSWSF00947520100915 The IPO would probably still occur on the London Stock Exchange (www.londonstockexchange.com) (UK) and/or the Warsaw Stock Exchange (www.wse.com). While the IPO market heated up in the US in the latter half of 2010, this was not the case in Europe. Not having an IPO in 2010 also gave AVG the opportunity to more quietly perform some late Q4 adjusting of staffing levels.

Why No IPO in 2010

There are variety of potential reasons for the IPO not taking place in 2010. The board may have decided to delay. They may not have liked the capitalization, valuation arrived at. The projected numbers for either revenue or licenses for Q3 and Q4 may have been missed. Institutional investors may have not have shown enough interest. AVG Technologies may have been surprised by competitor activities. They may have been disappointed with the 2011 release. Expenses may have been running too high, effecting margins and the company may have wanted to deal with this prior to going public. They also may have still been studying other alternatives to going public while providing an exit strategy for investors to cash out on at least some of their investment.

Some Alternatives to an Initial Public Offering

• Get acquired by a larger internet security/antivirus competitor – Symantec and McAfee would be the obvious choices. Would these companies do it for the market share, to have an alternative brand, to purchase technology, other? Symantec already has PC Tools as an alternate brand. PC Tools also has a free antivirus product for their customers. McAfee doesn’t have a “B” brand, but they do have SiteAdvisor, an AVG LinkScanner(r) competitor. It probably wouldn’t make sense to keep both SiteAdvisor and AVG LinkScanner active.

Under these scenarios – Symantec would have approximately 19.7% of the worldwide antivirus market share if they acquired AVG. A McAfee acquisition would result in a 14.7% market share. The current market leader is Avast with 17.5%. *

• Merge with an internet security competitor as phase one of an exit strategy - With respect to size, Avast and Avira come to mind. Avast! Currently has more customers at 135mm and have recently had a cash infusion. They are also Czech Republic based. Neither Avira nor Avast! Have a major US presence. Avira claims about 100mm customers.

An Avast/AVG merger would result in a combined market share of approximately 27.2%. An Avira/AVG Technologies merger or acquisition would result in a combined market share of about 18%.*

*The above is based on figures from OPSWAT’s “Security Industry Market Share” report for Q4. See http://kensek.blogspot.com/2011/01/opswat-report-on-worldwide-antivirus.html The report is available at www.oesisok.com. http://www.oesisok.com/news-resources/reports/MarketShareReportDecember2010.pdf

• Get acquired by a vendor that may be interested increasing their presence in security - United States companies that come to mind are Cisco and Hewlett Packard. There have “always” been rumors about these companies being interested in Trend Micro. CRN suggested that Oracle should be interested in Trend Micro. Perhaps they would be interested in AVG, though Trend Micro gets a substantial portion of their revenue from business internet security products.

Activities To Increase AVG's Security Position in 2011?

• Purchase share by acquiring a smaller competitor. Virus Bulletin shows close to 100 vendors/products on an alphabetic listing vendors with security solutions (not all of these are smaller than AVG) http://www.virusbtn.com/vb100/archive/results?display=vendors

• Identify and purchase a smaller competitor or competitors that may be more advanced from the perspective of its scanning engines, or cloud technology.

• Purchase additional functionality for the core product. This could be encryption technology, for example (which both Symantec and Trend Micro acquired last year through acquisition).

In July, AVG Technologies had “appointed Goldman Sachs, JP Morgan, Morgan Stanley and UBS as bookrunners for its upcoming IPO with Jefferies acting as co-lead manager.” They may have some additional business reevaluating and updating their valuation (capitalization)during Q4 based on the most current data and competitor movements. http://www.ifre.com/equities-avg-appoints-for-uk-ipo/598999.article

If the company suddenly books a band, something may be coming up!

For additional details, go to “September Addendum - AVG Technologies Prepares to Go Public”
http://kensek.blogspot.com/2010/07/avg-technologies-prepares-to-go-public.html

August 2011 comment - The IPO market has been heating up in Silicon Valley. However, "pundits" are commenting that the recent stock market gyrations following the downgrading of the US government credit worthiness may temporarily put a damper on IPO activity.