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Getting the best of both worlds: Norkom’s listing on AIM and IEX Back  
Twenty months on from its public launch on the AIM and IEX markets, Norkom Technologies, provider of financial crime and compliance solutions and one of Ireland’s shining software success stories, continues to pursue a strategy of solid growth. Paul Kerley, Norkom’s CEO, examines the route to their IPO, along with the challenges and benefits of life in the public domain.
In June 2006, Norkom Technologies was admitted to the IEX and AIM markets following a successful IPO, supported by several years of revenue growth and profitability. The decision to become a publicly listed company or remain a private commercial entity essentially boiled down to one thing - our ambition to grow. In eight years of existence, Norkom had achieved its initial objectives of becoming market leader in Europe. The time had duly arrived to turn our attention towards establishing our credentials on a
global basis.

To become truly global, Norkom had to pursue both organic and acquisitive opportunities in North America. As a private company, Norkom was capable of achieving significant organic growth in North America, however, its capacity to make acquisitions of US domiciled organisations using European private paper ranged from difficult to downright impossible.
Paul Kerley

Norkom’s management team took the view that a public listing would give the company the credibility of public currency, creating opportunities to complete acquisitions in North America. And this we did. One year after its successful listing on both AIM and IEX markets, in a deal worth $36.5m, Norkom acquired US-based Digital Harbour, a company whose solution set and domain expertise complemented those of Norkom.

More importantly, the acquisition would expand Norkom’s client base, accelerate our global growth strategy and fast-track Norkom’s stated objective to become the “gold standard” solution for financial crime and compliance globally.

The public listing also enabled Norkom to reduce the need for double due diligence. Instead, Norkom’s enhanced public standing in the marketplace not only accelerated the due diligence process but collapsed the time required by prospects and key clients to establish Norkom’s financial credibility. With a faster, more efficient due diligence process, the company could return more quickly to concentrate on executing our strategy. Indeed, so successful was the IPO, public listing and Digital Harbour acquisition that the subsequent secondary funding of €15 million was oversubscribed and closed within a number of hours of announcing the deal, evidence of the fact that the strategy was, indeed, working.

In addition to the tremendous positive external effects that the public listing had on Norkom, we quickly realised the positive impact it was having internally. Not only did it help to flatten capital structures, but it also succeeded in bringing a certain amount of liquidity to stock and made the value of employee incentives a lot more transparent
and meaningful.

The challenges of going public
Notwithstanding, the benefits of listing on the public markets, we were equally cognisant of the challenges of becoming a public company and had to duly prepare for such a momentous and, potentially, debilitating change.

Taking a company that’s been growing on average 40 per cent compound year-on-year for the last four consecutive years to a public market, whilst attempting to maintain this level of growth, invariably places a huge burden on any organisation and the management team in particular. Careful planning and upfront investment in additional management resources and skills were required to successfully execute, not only this and the IPO, but also the ongoing M&A and investor relations activities, in an effort to make the overall strategy a success. In addition to preparing management for public life, the selection of appropriate markets proved to be a critical factor. Then there’s the inevitable burden that is placed on a senior management team when running a public company, where some of the successes and all of the failures take place in the full glare of the public eye.

Deciding between AIM and IEX
Norkom, working with its board and investors, evaluated a number of public listing alternatives. We decided to list on AIM due to the profile that it would bring to Norkom’s credibility with prospective customers and M&A prospects in North America and throughout Europe. Having investigated the benefits of listing on Dublin’s IEX, it very quickly became apparent that it wasn’t a decision between one or the other. Instead, a dual listing on both London and Dublin stock exchanges offered significant benefits with minimal incremental cost or additional regulatory burden for the company. And, in fact, we discovered there was significant demand, not only from Irish domestic funds, but also from funds in the UK and Continental Europe to trade in euro. The IEX provided us with the opportunity to tap into this pool
of funding.

So how do you know you’re ready for public listing?
The answer to this is quite simple. You know you’re ready when you have a track record delivering strong operational performance, strong future growth potential in an exciting marketplace, and you have put in place the right management team and infrastructure in terms of people and skills with the capacity to take on public life and avail of all opportunities in the market. In readiness for a successful public listing, you need to:

• Have the right strategy
The decision to take your company public must be made for the right reasons. Some organisations target the IPO simply as a liquidity event. There are other ways to achieve liquidity. Going public for the wrong reasons may actually cripple the company. We approached the IPO because we believed that being on the public markets would support our underlying organic and acquisitive strategy of growth with profits. Going public marked the beginning of a brand new chapter in the life of Norkom and unleashed a whole plethora of opportunities for us.

• Prepare the organisation and achieve predictable and repeatable performance
At the same time, you must be capable of taking on the additional load that will be placed on management both pre- and post-IPO. Not only does this require investment in management capacity and development of new skills, but it also necessitates a whole organisation that is capable of being predictable in how it executes its strategy. Certain preparedness, such as our conservative and prudent approach to accounting standards, allowed Norkom to create visibility in numbers. We had already established capability in moving into new markets and replicating our success. These elements underlined our confidence to step into public life.

Outside of organisational preparedness, there are specific characteristics that must be exhibited by an attractive candidate for the markets. These relate to aspects like how exciting the market is, what the potential for growth is in both revenues and profitability, and what evidence of growth has been demonstrated so far.

Structure the deal around the right type of investors
It is important to shape the deal around targeted investors. In Norkom’s experience, we were particularly interested in attracting quality institutional investors that could support our ongoing strategy. To be relevant to these institutions, we would need to be targeting an initial free-float of somewhere between 35-45 per cent of the share capital. Given that some funds are prevented from owning more than a certain amount of stock in one company and also have a minimal deal size, this criteria determined the overall dynamics for the rate of revenue, which, in Norkom’s case, was moving from €18.5 million and had a CAGR (Compound Annual Growth Rate) in excess of 35 per cent, which meant that minimum funding would need to be somewhere between €17-25 million.

Invest time and energy into investor relations
Companies should not underestimate the power of good investor relations and should invest the time and energy into perfecting this relationship. The securing of a high quality, institutional investors in Ireland, UK, Continental Europe and North America, proved to be a huge success for Norkom, especially when we returned to the market for its support to complete the Digital Harbour acquisition. Notwithstanding current market conditions, Norkom enjoys significant support from its institutional investors and remains determined to continue to execute its strategy both organically and acquisitively with support of public markets. In fact, in 2007 Norkom was named the ‘best new listing in Ireland’ at IR magazine’s annual Awards for excellence in investor relations and has been shortlisted for best investor relations for the 2008 awards.

Would I do it all again? Absolutely!
Norkom now has the opportunity to build on our high standing reputation in the public market and markets for financial crime solutions and execute our plan for growth with profits. We are now also in a position to develop a whole new period of growth safe in the knowledge that we have secured the right investor structure and strategy to support us. I truly believe that it would have been difficult to achieve the progress we’ve made so far and avail of all the opportunities that lie ahead without having moved into the public domain.

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