Lawson to test software IPO waters

Summary:The company will find out if the market is ready for an enterprise software initial public offering when it makes its debut Friday.

Technology stocks have been making a comeback lately, but is Wall Street ready for an initial public offering in the enterprise software sector?

Lawson Software will find out this week when it makes its debut on the public markets.

The St. Paul, Minn.-based company is scheduled to price its offering Thursday night and make its public debut Friday, in a sale underwritten by Lehman Brothers and J.P. Morgan Chase. Lawson initially planned to sell 12.7 million shares for between $15 and $17, but scaled that back last month. The new plan is to put out 14 million shares at between $13 and $15 each.

Lawson--which competes against heavyweights such as Oracle, PeopleSoft and SAP--will be the third tech company to go public in the past two months.

This year, 22 out of 84 IPOs, or about a quarter, have been technology companies. That's way down from a year ago, when 240 out of 374 IPOs, or about two-thirds, were high-tech businesses, according to Thomson Financial Securities.

And investors have shown some signs that they're getting interested in technology again.

Chipmaker Magma Design Automation saw its initial offering close 46 percent higher when it debuted last month. And video game designer Bam Entertainment rose 9 percent when it made its public debut.

"There's been a surge, if you can call it that, in terms of tech-related IPOs," said Steven Tuen, analyst at IPO Value Monitor. "Because of the recent rally in the stock markets, investors are becoming higher-risk tolerant, so they're changing their interest in tech companies.

"I think the combination of market sentiment and Lawson's ability to generate profits should translate into a pretty healthy premium for the stock when it begins trading," Tuen said.

And Lawson's not exactly a sexy company. Founded in 1975, it makes the somewhat boring but necessary software that helps businesses automate tasks for areas such as human resources, financials and supply chain management. Lawson's software can be administered over the Internet.

"Looking at the last five years of results, we do not have to cringe at the thought of continued year-after-year losses as the company tries to find the magic business pill of success," wrote IPOfinancial.com President David Menlow, who highlighted the stock as his "IPO Pick of the Week."

"Lawson has grown an average of just under 30 percent. With the exception of 2000, they were all profitable years."

So far, Lawson has survived and done fairly well by targeting certain "vertical" markets: health care, retail, professional services, financial services and public sectors. It's got more than 2,000 customers--a fact that should assuage any investors worried about the competition.

The company has specialized in midlevel businesses, leaving the large enterprise market to its bigger competitors. But with the economy tightening up, those competitors have begun to show an interest in smaller customers, said Jennifer Chew, analyst at Forrester Research. J.D. Edwards, for instance, recently announced plans to eliminate some of its partnerships so that it could go after the midlevel market itself, she said.

By continuing to focus on specific vertical industries, Lawson can "fill in the gaps" left by the bigger players, she said.

Lawson has a strong partner in IBM. The companies signed a deal in February to jointly market and sell Lawson's flagship Insight software system on all IBM eServers.

And in May, it got a vote of confidence from the venture capital community, receiving $40 million from venture firms TA Associates and St. Paul Venture Capital.

Lawson reported revenue of $383.9 million for fiscal 2001, up from $312.9 million in fiscal 2000. It recorded a profit of $14.5 million, or 21 cents per share, in 2001, compared to a loss of $3.35 million, or 5 cents per share, in 2000. The 2000 loss was the only full-year loss the company has reported since 1997.

In its first fiscal quarter of 2002, ended Aug. 31--the most recent quarter with information available--the company recorded a profit of $1.09 million, or one cent per share, on revenues of $100.9 million. That compares to a profit of $5.2 million, or six cents per share, on revenues of $84.1 million, in the year-ago quarter.

"They have their niche targeting certain vertical industries, and they've developed a brand name within those industries, but it's a tough business," Tuen said.

Topics: Start-Ups, Enterprise Software, IBM, Oracle, Software

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