With more than 20 years of development behind it, the planned flotation next month of computer security software maker AVG is hardly a story of rapid and unexpected success.
But AVG’s evolution from what the former Czechoslovakia to a domicile in the Netherlands and towards an initial public offering on the New York Stock Exchange with an estimated market capitalisation of more than $700m is fascinating – a big deal indeed.
Perhaps the most interesting part has been the potential for conflicts to be managed among its different shareholders about how the company’s success and the wealth that has flowed from it to be managed.
The company first took in private equity money in 2001, leading to a full buyout by Prague-based Benson Oak three years later. There is still a close relationship between AVG and Benson Oak as the software company paid about $500,000 to the investment bank for advice on corporate development.
Intel Capital became an investor in 2005 as part of a secondary buyout by Enterprise Investors and growth equity firm TA Associates joined in late 2009.
AVG, therefore, can either be seen as a mature, 20-year-old company with strong free cashflows (net income more than doubled to nearly $100m in the first nine months of last year) or a growth equity company trying to dominate a rapidly expanding market for security software.
Investors supporting the first view have helped AVG take out a $235m five-year loan last March to pay a dividend, which also helps boost the internal rate of return for funds.
Insiders supporting the latter view see a flotation as a way to raise money without the obligations and interest coming from debt while offering an exit route to shareholders wanting to sell and stock for potential takeovers.
In a market downturn since mid-2007, it has tended to be US companies that have tried to invest to seize market share and retain strong balance sheets for potential acquisitions as competitive headwinds increase.
One of the main competitive headwinds to face AVG is the integration of security into hardware, including by AVG shareholder Intel through the latter’s acquisition of McAfee, negating the need to buy or install software separately. The IPO, therefore, of AVG, offers the company visibility to potential acquirers but also capital and stock to decide how quickly it wants to continue growing.
The IPO, therefore, offers AVG an opportunity to decide the shape of its future: buying out its private equity backers by traditional institutional fund managers and further growth targeted or listing ahead of a takeover in the next few years by a rival and the closure of yet another interesting European technology story.