IPO Bound: SciQuest Roadshow Roars Ahead

It's been a while since Ariba has had company in the public marketplace, as they are the only pure-play focused procurement vendor on the NASDAQ (other public companies such as Concur focus on auxiliary areas). In fact, you'd have to go back to 2001/2002 when vendors like Commerce One, FreeMarkets and numerous others were still operating independently. Yet if this recent article from the North Carolina News & Observer is any indication, it looks like SciQuest could be joining Ariba as a public company sooner than many may think.

According to the story (which we've also covered here previously), SciQuest originally hatched -- or announced -- its initial intent to go public in March of this year, with the filing of its first S1, an initial draft of a prospectus to potential shareholders. But now, as of "late Thursday" last week, "the company disclosed new pricing details in a filing with the Securities and Exchange Commission, signaling that the deal is closer to moving ahead."

Specifically, SciQuest now plans to sell as many as 6.9 million shares at $9.50 to $11.50 each, a sum that would raise in excess of $55 million after expenses (if priced at $10.50 per share). The proposed maximum offering is nearly $80 million. Readers should note, however, that these numbers (both number of shares and share pricing) could change, as SciQuest continues to receive feedback from investors prior to final pricing and issuance.

The News & Observer also notes, in a positive development for the IPO, that the road show to visit potential institutional investors is kicking off and that SciQuest's CEO, Stephen Wiehe "will travel to New York, Chicago and other cities with the IPO's investment bank underwriters to meet with money managers who run massive pension and mutual funds." Stephen will have to convince fund managers that the proposed valuation, which at $10.50 would support a trailing revenue multiple of roughly 6 times (and a 2010 revenue multiple of roughly 5 times). This would price SciQuest at a premium to Ariba from a revenue multiple perspective. Yet in terms of EPS (both trailing and current year), the multiples look to be more inline (or even at a slight discount to Ariba and others). And it's clear that SciQuest is a pure SaaS vendor, unlike Ariba (which has a legacy enterprise software component as well as a significant consulting/professional services business).

Is SciQuest's proposed multiple/offering price justified? I've not dug into SciQuest's financials or business model in the type of detail that financial analysts do, but I did spend some time earlier this year taking a closer look at some of the vertical-specific capabilities of its software in life sciences and higher education. I've spoken to customers as well, and what I've found is impressive (and in my view defensible) from a solution standpoint. Stay tuned as we look at some of their capabilities and product differentiation compared with less specialized best-of-breed providers and the ERPs in more detail in the coming weeks.

Jason Busch

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