Flotations beckon for IT companies

Several information technology (IT) companies from the Republic are likely to seek a public flotation over the next two years…

Several information technology (IT) companies from the Republic are likely to seek a public flotation over the next two years, according to a report from Goodbody stockbrokers. The report, Information Tech- nology - the Irish Opportunity, says there are about nine companies (see table) expected to seek a listing on either the Irish Stock Exchange or the US Nasdaq market.

Listings on the Dublin exchange will provide major opportunities for Irish investors, says the report.

The report adds that Irish technology companies listing on Nasdaq - the US market on which a lot of technology companies list - will increasingly seek a listing on the Irish market at the same time.

The report says that by the end of the decade, "the high technology sector will account for some 5 per cent of the total value of ISEQ".

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"We believe the way forward is through dual listings on Nasdaq and the Irish market, which will provide the double benefit of a US rating with the more stable investor base associated with Irish and European shareholders."

Irish IT companies should realise that investors are beginning to take the sector seriously and there is more venture capital available to the sector now than there was three years ago, says the report.

"There is growing interest among later-stage investors in participating in IT opportunities at ratings comparable with those available internationally," it adds.

Less than 5.9 per cent of indigenous software start-ups failed in 1994 and 1995 compared to 6.17 per cent of overseas company failures, it notes.

There are several reasons for emerging Irish software companies seeking an Irish listing, the report says.

Among them is the claim that Irish investors tend to be more long-term in their outlook and the argument that Nasdaq is "characterised by the presence of momentum investors, who can take aggressive positions in new issues and sell out when a reasonable post-flotation premium has been achieved".

Goodbody's say that for companies which do not wish to seek a listing on Nasdaq at this stage, the DCM (Developing Companies Market) or the AIM (Alternative Investment Market) represent a "viable alternative" for companies to tap into capital markets and provide a stepping stone to eventually entering Nasdaq.

The report lists several challenges facing Irish software companies.

One is to come up with new versions of products in an industry with "ever shortening product life-cycles".

The authors refer to the challenge of companies achieving distribution and cost effective market penetration in a worldwide market.

The seeking of strategic partners - CBT's alliance with Lotus is used as an example - is strongly recommended. Skill shortages could threaten the growth potential of some companies as well, says the report.