PE-backed Rosetta seeks $115M IPO

Rosetta Stone Inc., a provider of language training software and services, is looking to open a dialogue with Wall Street, filing to raise $115 million in an IPO on the New York Stock Exchange under the symbol RST.

It would mark a rare buyout-backed IPO this year if it makes it to market.

The IPO also promises to attach a value to the considerable stakes of two buyout firms, ABS Capital Partners and Norwest Equity Partners, which purchased Fairfield Language Technologies, the predecessor to Rosetta Stone, in January 2006 for an undisclosed amount. In its S-1 filing on Sept. 23, Rosetta Stone disclosed that Baltimore-based ABS Capital owned about 46% of the company as of June 30, while Minneapolis-based Norwest Equity owned about 30 percent.

It’s unclear how many shares will be sold in the offering or at what price the individual stock will be offered.

Even before the meltdown in financial companies in mid-September, the IPO market was desultory, producing only a handful of successful debuts, such as that of IPC The Hospitalist Co., Visa Inc. and RiskMetrics Group in 2008.

Representatives of ABS Capital and Norwest Equity declined comment for this story, citing quiet period restrictions. The lead underwriter for the offering is Morgan Stanley.

Rosetta Stone should prove a decent barometer for Wall Street’s appetite for new investments. It’s a profitable company with great name recognition. For the six months ended June 30, the company reported a profit of $2.9 million on $83.3 million in revenue, compared to a profit of $359,000 on $59.5 million in revenue for the same period in 2007.

“On the surface, it won’t be a difficult sale for investors but, in the current environment, the actual financials are going to get a closer look,” says David Menlow, president of

Menlow says that the timing of the filing suggests Rosetta Stone expects to get the deal done by the end of the year. He thinks that may be tough and believes the size of the offering is likely to be expanded by the time it prices.

Rosetta Stone estimates it generated about 5% of its revenue in 2007 outside the United States, and it plans to use some of the IPO proceeds for overseas expansion. The company has already established units in the United Kingdom and Japan, and it’s exploring opportunities for expansion in Asia, Europe and South America, fitting for a company that offers training in 31 languages. Beyond the core software product, Rosetta Stone also has an online peer-to-peer practice site called SharedTalk. The business boasted more than 100,000 active users between Jan. 1 and Aug. 31 this year, according to the filing, with 13,000 new registrations coming in the month of August alone. —Michael Baron