NetSuite files for IPO

In auction-style public offering, hosted-software maker seeks to raise $75 million--and to stay under Larry Ellison's control.
Written by Dawn Kawamoto, Contributor
NetSuite, an on-demand applications company controlled by Oracle's Larry Ellison, has filed for an auction-style initial public offering, according to a Monday filing with the U.S. Securities and Exchange Commission.

The company, which hopes to raise $75 million based on its registration filing fee, is currently controlled by Tako Ventures, a wholly owned subsidiary of Lawrence Investments that is owned by Larry Ellison, Oracle founder and chief executive.

Ellison affiliates and family members, which hold a 74 percent stake in the company, are expected to retain control of the company post-IPO, raising questions about whether that control would dampen investor enthusiasm.

Under Ellison's controlling interest, a future buyout of the company could be nixed, even if NetSuite's management and other investors deem it in their best interest. Also, a controlling interest of 50 percent or more makes NetSuite exempt from having to adhere to certain corporate governance standards imposed by Nasdaq and the New York Stock Exchange.

Nonetheless, the timing may be good for an IPO.

The second quarter has been one of the biggest for IPOs since 2004, based on number of offerings, said Matt Toole, an analyst at Thomson Financial. Of the 26 public offerings in the second quarter, 13 were tech-related.

NetSuite provides hosted customer relationship management, or CRM, software and is viewed as a competitor to Salesforce.com. It also offers software for enterprise resource planning (ERP) software and e-commerce.

Last year, the company generated $67.2 million in revenue, up 84.6 percent from the previous year. In quarter ended March 31, the company raised $23.2 million in revenue, up 71.8 percent, according to company's SEC filing.

But the company has suffered a history of losses, running into the red to the tune of $23.4 million last year. And in the March quarter, it sustained a net loss of $3.7 million. NetSuite has accumulated a deficit of $193 million, as of the March quarter, according to the filing.

NetSuite, which has yet to set the number of shares it will sell or the price range for those shares, plans to use the proceeds not only to create working capital, but also to repay the outstanding balance on its $20 million secured line of credit with Ellison's Tako Ventures. As of March, NetSuite owed Tako $7.5 million on the line of credit.

NetSuite and Oracle have managed to do a few deals as well. In 2005, NetSuite signed a $2.5 million deal for a perpetual license for some of Oracle's software and services. And last year, NetSuite, in an arm's-length deal, provided $542,000 of software to sailboat-racing syndicate Oracle Racing, in exchange for marketing and promotion as an official supplier.

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