VerticalScope increased the size of the offering on Monday after a wave of investor interest catapulted the deal to ‘many multiple times oversubscribed’
Shares of VerticalScope Inc. made its public debut on the Toronto Stock Exchange on Tuesday after raising its offering by 25 per cent to $125 million a day earlier.
The Toronto-based company’s initial public offering is the latest in a parade of Canadian tech companies to take to the public markets. It hiked the size of the deal to $125 million from $100 million after garnering strong demand from investors.
VerticalScope listed on the Toronto Stock Exchange under the ticket symbol FORA at $22 per share. The company had initially planned to price the offering between $19 and $23. The stock closed on its first day of trading at $22.95, down 9 per cent from its opening price of $25.25.
The company decided to increase the size of the offering on Monday after a wave of investor interest catapulted the deal to “many multiple times oversubscribed,” chief executive officer Rob Laidlaw said in an interview.
“We had a significant amount of investor interest in our business,” Laidlaw said. “We have a very strong M&A pipeline coming up, and we thought that we would be able to put that money to work and deliver shareholder returns.”
The deal values NordStar Capital LP’s stake – one of its largest shareholders – at $173 million. NordStar purchased Torstar Corp. in a $60 million takeover last year, seeing its stake almost triple with the IPO.
RBC Dominion Securities Inc., Canaccord Genuity Corp. and National Bank Financial Inc. led the IPO, which also included TD Securities Inc., Raymond James Ltd., Desjardins Securities Inc., Cormark Securities Inc. and HSBC Securities Inc.
We had a significant amount of investor interest in our business
The company – founded by Laidlaw in 1999 – hosts more than 1,200 enthusiast communities websites on topics including guitars, woodworking, beekeeping, dogs, do-it-yourself projects and sailing, with more than 100 million monthly users.
With $100 million earmarked for the 20 potential acquisitions in its pipeline over the next year, VerticalScope expects to add US$18 million in adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) collectively. The company booked US$26.6 million in adjusted EBITDA in 2020, a five per cent increase from 2019.
In its 22-year history, the company has made more than 200 acquisitions. In 2018 and 2019 alone, it spent $50.1 million on 25 acquisitions – including Yellow Pages’ RedFlagDeals – before largely pausing its acquisition strategy last year to focus on upgrading its cloud-based software and migrating its online communities to the new platform.
When search engines prioritized online forums with more modern user experiences in 2018, VerticalScope’s websites were based on multiple legacy platforms, making it difficult adapt, the company said in its prospectus. Its search ranking “declined meaningfully,” its regular number of users tumbled, and its revenue sunk 14 per cent year-over-year in 2019.
Since then, it started transitioning its communities to its cloud-based platform, migrating 88 per cent of its forums as of Mar. 31. In the past twelve months, revenue jumped 11 per cent.
With the funds raised with the IPO, Laidlaw is turning his sights back to his acquisition strategy.
“It wasn’t a straightforward decision, because we had to take a step backwards on monetization because we were facing traffic headwinds,” Laidlaw said, adding that the company reduced ads to make its sites faster for users. “That’s been a material improved to our business and we’re back to growing now.”