Riverdeep, the educational software company, soared in value by 235 per cent to a closing market value of $1.8 billion (#1.86 billion) after its listing on US and Irish stock exchanges yesterday.
The extraordinary surge in the share price over the day from an opening of $20 per American Depositary Share to close at $66.9 makes it the most successful public listing of an Irish company to date. It helped the Nasdaq reach another record high of 5,046.63. Despite accumulated losses of $32 million, the company is the latest darling in the bull market for all things Internet related.
Following an issue of 36.5 million new ordinary shares, 25 per cent of the company's equity, Riverdeep's value rose from an opening market capitalisation of $536 million to close at around $1.8 billion. In Dublin, the shares opened at #3.48 per ordinary share to close at #9.20, up a more modest 164 per cent. Each American Depositary Share is equivalent to six ordinary shares.
The biggest single beneficiary of the listing was Mr Pat McDonagh (48), the founder of SmartForce (formerly CBT), who set up Riverdeep in 1995 as a spin-off. Following yesterday's flotation, his 66 per cent shareholding has been diluted to 53 per cent, but is now estimated to be worth $951 million.
Another individual to reap considerable gains from the listing is company chief executive officer, Mr Barry O'Callaghan (30), from Cork. Having joined the company just a year ago, his 7 per cent holding is now estimated to be worth $126 million.
The Riverdeep management team and 160 employees shared an 11 per cent stake in the company prior to flotation, while a further 14 per cent was held by a number of institutions and private investors of Davy Stockbrokers, who bought into the company last November for $15 million. Following yesterday's listing these holdings have been diluted but are worth an estimated $162 million and $108 million respectively.
Along with the 36.5 million new shares issued, certain unnamed shareholders may immediately benefit from the listing after granting the underwriters - Credit Suisse First Boston, Donaldson Lufkin & Jenrette, Davy Stockbrokers and Wit Soundview - an option to sell 5.475 million additional ordinary shares amounting to approximately 1 per cent of the company's equity over the coming month.
Some doubts have been raised about Riverdeep's future, with a number of industry observers suggesting the company has been hugely overvalued. The company's initial focus on the development of CD-ROM based software raised concerns that it would be bypassed by competitors harnessing the Internet for product delivery - a far more cost-effective route to market.
However the company's acquisition last July of the educational software assets of Logal Educational Software and Systems equipped it with Internet delivery capability and an Internet portal site which has since been greatly enhanced. A key concern remains that the impressive, and often cited, base of Riverdeep's products in approximately 5,000 schools in the US is based on its CD-ROM products. At a recent presentation in Dublin, Mr O'Callaghan outlined Riverdeep's strategy in the US and stressed the central role the Internet was now playing in its product delivery. Through annual subscriptions and through free promotions, more than 600,000 students are currently estimated to subscribe to its products over the Internet.
However, emerging Internet wisdom is increasingly identifying companies that contribute to the Internet's infrastructure as the real safe bets in the current investment climate.
