Riverdeep eyes float on US school software sales

Riverdeep, the Irish educational software company, has hired a new chief executive and is planning to float on the Dublin and Nasdaq stock exchanges within the next 12 months. The Dublin-based firm, which began as a spin-off of CBT Systems, has just acquired a smaller company specialising in delivering software through the Internet.

Last November, Riverdeep said it had completed a £2 million (€2.54 million) equity investment round which valued the company at £25 million. Since then, executives say, it has made significant inroads into the US "K-12" market, the public school system which comprises 45 million children aged from four to 18.

Riverdeep's new chief executive is Mr Barry O'Callaghan. Until now, Mr Ed Wallace acted both as chief executive and head of development. The company said he would now devote his time fully to product development.

Mr O'Callaghan specialised for Credit Suisse First Boston and Smith Barney in taking companies public and was the chief co-ordinator of Esat Telecom's flotation.

This week, Mr O'Callaghan said he expected Riverdeep to hold one last "mezzanine" financing round this autumn, before it seeks a listing on both the Dublin and Nasdaq stock markets, probably next summer. However, if market conditions were right, he added, the flotation could take place earlier.

The company says it has exceeded its sales expectations for the school term just ended, with sales in June of more than $1 million (€980,000); over the next year, it expects sales of at least $15 million, with a disproportionate amount of contracts signed in the final few months of the school year.

"From a revenue perspective, we are running faster than we ever anticipated, and that's great," Mr O'Callaghan said. "I would expect that we would do 40 per cent of our annual revenue target in the final quarter.

"And that really then becomes the deciding quarter in terms of when we go public. Certainly, at current run-rate, with that quarter under our belt next year we should be in a position to come to the market either before or after the summer," he added.

The company has developed almost half of the programs it needs to cover the entire maths curriculum for US schools. It now employs 70 people in Dublin and a further 35 in Dallas, Texas. Software spending in the "K-12" market was $500 million last year and is said to be growing at 25 per cent a year as schools upgrade their technology. Within this, maths is the fastest-growing subject.

Riverdeep said it had purchase orders in 250 schools so far and that its sales network covered 85 per cent of what it defined as its core market.

The firm attaches considerable significance to its acquisition of Logal, an Israeli educational software company, which has a well-designed system of distributing educational programs to schools over the Internet.

Last month, Riverdeep paid $5.3 million for Logal's assets and also retained key Logal personnel to gear up the Irish company's product line for Internet distribution.

Mr O'Callaghan said that, while he did not want to over-emphasise the Internet, online distribution did represent the future of the company. "It's a question of whether you are selling the bluesky model or the real-revenue model. What I am selling is real revenue, but we are moving over to being a blue sky model as well."

Unlike most Internet companies, where there was scant talk of profits, he added, online distribution would actually help River deep's bottom line: "If I can sell my product online - get the teachers and the students using it online - I no longer have to send my staff development person or my technical person into the school. So, from a margin perspective, my cost of sale decreases and my operating expenses decrease."

Most schools in the United States have computers, Mr O'Callaghan said, but only a fraction had the broadband capacity necessary to run software online for whole classes.

However, because these schools were upgrading their equipment fast, and almost all would have broadband within four or five years, the market for Riverdeep products was expanding rapidly, he added.