Bulgarian IPO showcases ICT strengths

By bne IntelliNews March 16, 2015

Andrew MacDowall in Belgrade -


An IPO by one of Southeast Europe’s biggest and most successful information and communications technology (ICT) companies will give investors the chance to participate in a sector in which Bulgaria has displayed remarkable strength in recent years.

Racking up double-figure annual growth in some cases, Bulgaria’s ICT sector is capitalising on a communist-era legacy of excellent technical education and technology development, the EU’s lowest labour costs, a favourable business climate and a strategic geographical location.

Executives at Sofia-based Sirma Group Holding (known as Sirma or SGH) hope that the share offering will not only act as a springboard for their company’s further expansion, but encourage other budding ICT firms to list on the Bulgarian Stock Exchange (BSE) and act as a fillip to the small and relatively illiquid bourse. The listing is a break from a more common model of venture capital funds investing in young, go-getting Bulgarian companies, before exiting through sales to international players.

On February 19, Sirma announced that it would be launch an IPO to raise capital to fund an expansion. The company was founded in 1992 and has delivered projects on five continents for partners and clients including Microsoft, IBM, Oracle, Hewlett Packard, Siemens, and public and governmental institutions. Its flagship products include subsidiary Ontotext’s dynamic semantic publishing technology (that helps computers to parse textual data), which has been used by clients including the BBC, the Financial Times, the British Museum and AstraZeneca.

“We believe the time has come for Sirma to make the next big step in its corporate history,” SGH chief executive Tsvetan Alexiev tells bne IntelliNews. “The IPO will give us the momentum to invest in new technologies and markets as well to further develop our current successful business units.”

“I believe the successful IPO of Sirma Group Holding will also provide confidence to more Eastern European IT companies to think bigger. We believe that with a pool of successful IPOs of technology companies we can grow further the tech industry in Bulgaria,” Alexiev says, adding that the company’s strategy included “strategic investments” in companies with technology R&D capabilities with a “global impact”.

In December, Sirma’s board agreed to offer potential investors 16mn new shares, priced in a range of BGN1.20 to BGN1.65 (€0.60-0.84). The aim is to attract foreign investors who are keen to tap into the growth of a rising player in a burgeoning sector. “Sirma can offer the regional and international investors the benefits of joining the journey of a reputable technology player from the emerging markets to becoming a strong multinational,” says Alexiev.

Pavel Ezekiev, co-founder of tech venture-capital fund NEVEQ and a former outsourcing entrepreneur, says that the dynamism of the sector in Bulgaria bodes well for investors, provided Sirma can strategise wisely. “The company operates in a sector which is 2% of GDP, up from less than 1% three to five years ago,” he tells bne IntelliNews. “Growth opportunities are there, so at this stage companies which execute best will win. I have been involved with local companies growing from 50% to 200% per annum, once they define focus, abandon ambitions to conquer the world with technology and focus narrowly on what the customers need.”

He cites as an example Ontotext, an affiliate of Sirma, which grew over five times in five years once the management set sights on specific product niches, from media (FT, BBC) to life sciences (AstraZeneca). He also mentions Telerik, a Sofia-based application platform developer, which was recently acquired by Nasdaq-listed Progress Software for $265mn.


Deals like the Telerik one are much more common than stock market listings in the Bulgarian tech startup world. The ecosystem has classically relied on bright young graduates from institutions like the American University in Bulgaria and Sofia University, supported by angel investors such as the Bulgarian Business Angles Network (which has more than 400 projects) and seed fund incubators like Eleven and LAUNCHHub (with over €20m between them). Local VC funds like NEVEQ then come into play with the more successful companies, with international counterparts including Intel Capital (part of the global ICT giant) and Summit Partners also participating. The investors then look to exit through a sale to a major international partner.

In 2014, Nasdaq-listed TeleTech acquired Bulgaria’s leading outsourcing company, Sofica, which Ezekiev co-founded. TeleTech said that the takeover would help it expand its “footprint and language capabilities”. Other international players that have acquired Bulgarian startups (thus providing exits for their private-equity and VC funders) include TelecityGroup and US-based VMware. “Cash is king, while IPOs are about timing, book runners, competition,” says Ezekiev. “What happens if your top competitor came up with a major win, just as you go public? M&A of a valuable business can provide cash for attractive investment opportunities beyond the waiting game, which public markets require.”

Furthermore, the Bulgarian Stock Exchange is a relatively small and illiquid market, which took a substantial hit in the financial crisis. Its total market capitalisation is BGN7.275bn (€3.7bn). For purposes of comparison, the market cap of the Bucharest Stock Exchange is around €30bn (Romania’s economy is three times the size of Bulgaria’s), while that of the Warsaw Stock Exchange, Central and Eastern Europe’s largest bourse, is just over €300bn.

But Sirma’s Alexiev says that an IPO on the BSE fitted his company’s strategy best, while hinting at a possible future exit through a sale to an international player.

“The size of the current capital increase is relatively small, therefore the size of the IPO is insufficient to address a bigger and more liquid market,” he said. “The IPO aims to attract new capital to help SGH implement its investment strategy. Any potential sale to a foreign strategic buyer would have required a bigger stake, possibly majority, which may be the goal after we have done our job well.”

Miroslav Stoyanov, director of investment banking at local brokerage ELANA Trading, which is managing the IPO, echoes Alexiev’s view that the Sirma listing could be a harbinger for further offerings from the sector – to the benefit of the BSE. “The local stock exchange has unfortunately witnessed only a few IPOs and SPOs in the last couple of years,” Stoyanov tells bne IntelliNews. “A quality company, such as Sirma, may be the catalyst that will revive these instruments as a way to raise capital not only for companies from ICT sector, but from the entire economy. A successful IPO of Sirma will definitely send a positive signal to the rest of the players from the industry. We believe that such companies will be eager to consider that option as a way to fund their plans for development.”

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