IPO Watch: NetSuite

NetSuite
www.netsuite.com
(NYSE: N)
Scheduled for the week of Dec. 17
$114.1 million estimated proceeds
$952.2 million post-money valuation

It’s unclear exactly when this deal will be priced, but no matter: it’s worth talking about. NetSuite offers a range of business management software applications that small and medium-sized businesses can use as they need, an arrangement known as software as a service, software leasing, or application service provider software. Customers can get customer relationship management, eCommerce, data management and other software as they need it, and they can scale up or down as their business needs change. NetSuite has more than 5,300 customers who helped the company generate $67.2 million in revenue in 2006. The company lost $23.4 million last year, though.

This deal’s big draw is NetSuite’s lead investor, Larry Ellison, who is the founder and CEO of Oracle Corporation (Nasdaq: ORCL) (Disclosure: I write for some of Oracle’s in-house publications as well as for this newsletter.) He owned 60.9% of the company before the IPO, and he is expected to have more than half of it afterward — not including the shares held by his children. Part of the appeal for Ellison seems to be reaching a customer base that is too small for Oracle’s products. He’s not selling any stock on the IPO, but he will be transferring his ownership to a separate limited liability corporation in order to eliminate his voting control and any conflicts of interest that could develop between Oracle and NetSuite.

Credit Suisse and W.R. Hambrecht are the underwriters and Hambrecht’s involvement means that this offering will be done through an auction process. In a traditional offering, the investment bankers solicit their customers for orders and then try to match them with the shares being offered. This usually works well, but on occasion, it causes the banks to allocate shares to favored clients or to keep the offering price below what is best for the company. In the auction, which will run on www.wrhambrecht.com, investors specify how many shares they want to buy and at what maximum price. The price at which all of the shares will be sold is the price where the deal closes.

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