EPAM looks to better AVG's average IPO

By bne IntelliNews February 6, 2012

Nicholas Watson in Prague -

Czech software maker AVG Technologies may not have had what could be described as a sparkling debut on the New York Stock Exchange on February 2, but the IPO is part of wider positive trend for technology and media companies either from or focused on Central and Eastern Europe. Next up is EPAM Systems, expected to price on February 7.

AVG priced its 8m shares at $16, the low end of the $16-18 range, raising $128m and valuing the now Netherlands-based company at $870m. However, by the end of trading the shares had fallen 19%, though they stablised the next day, ending February 3 up almost 1%.

Analysts blamed this damp squib of a debut on the general malaise on the world's markets and a certain wariness of high-priced technology stocks, which last year had some warning about a possible second bubble forming as investors ploughed money into these high-flying stocks.

AVG, a company that began life over 20 years in the Czech city of Brno, follows the much-hyped listing last year of the Russian search engine Yandex, which saw investors hungry to gain exposure to Russia's booming internet sector bid up the shares 55% on their debut on the Nasdaq Stock Market, only to see them now trade below their IPO price of $25 at $21.65.

"AVG came at 20x annualised earnings and there's a couple of problems with this stock. If you look at what they've done with their money, it's to pay $550m in dividends and that's quite a lot for an $800m market cap company that's profit margins are going down. And Microsoft is going to start bundling anti-virus software with its Windows 8 that's coming out later this year, so at least a quarter of people who get a new computer will already have this kind of software loaded," says Francis Gaskins, head of the IPO database and research firm IPO Desktop.

That said, AVG, its predecessor Yandex and the soon-to-appear EPAM Systems are part of a growing trend of established CEE technology firms taking the plunge and going public on international exchanges. "A lot of these businesses have matured over the last 10-15 years. These are not new start-ups, not of the Facebook genre - some have been around for about 20 years and have had a chance to develop global client bases," Richard Seewald, a partner at Alpha Associates, a Swiss-based private equity investor that is a shareholder in both AVG and EPAM, told bne after AVG had completed its IPO.

Epam - which has the bulk of its operations in the Commonwealth of Independent States (CIS), and Belarus in particular - is expected to price its IPO of 7.4m new and existing shares on the NYSE at between $16.00 and $18.00 per share on February 7. EPAM's bookrunners - Citigroup, UBS, Barclays Capital and Renaissance Capital - will have been watching AVG's performance closely.

Should EPAM get its IPO out safely, then analysts expect these deals to provide a fillip for the region's technology sector, which has until now been rather overshadowed by that of India and China. "We've seen tech companies increasingly coming out of China and India, and CEE is a natural progression of that - it's long overdue for the region," says Seewald, adding that in the decade prior to euro crisis, "at Alpha we talked about CEE as having emerging market growth and developed market risk."

Following in the wake of these high-profile international IPOs, investors like Seewald hope to see an influx of new capital into the region, which will help further develop entrepreneurship there. "A listing of a Yandex or AVG on a US stock exchange is a catalyst for the region's technology and media investment environment. It's good news and may spur investment in younger companies, there's a lot of opportunity in the region."

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