Venture-backed Synaptics Inc. was the first company to brave the public market’s choppy waters in 2002. The San Jose, Calif.-based firm, which makes user interface solutions for mobile communications devices, went public in late January, raising $55 million from investors. The company’s stock opened at $12.50, a full $1.50 above its offering price. On its first day of trading, the company’s stock closed at $13.11, an increase of nearly 19.2% over its $11 offer price.
The stock closed at $12.61 per share on Feb. 28.
Now that the company’s quiet period has officially ended, Private Equity Week caught up with Russ Knittel, the company’s chief financial officer, to find out how Synaptics (NNM: SYNA) has fared in its first month as a public company. Here, he talks about the IPO process, the stigma associated with being the year’s first offering and the advantages of being public despite a still-rocky market.
What was the process behind pushing the IPO through?
In the fourth quarter of last year, the financial markets began to show some positive momentum. In fact the fourth quarter was the first quarter last year where the Nasdaq was actually up quarter-over-quarter.
Given that there was some positive momentum in the financial markets and given that we believed Synaptics as a company had all the characteristics the financial markets looked for prior to the crazy dotcom days – including things like market leadership position, revenue growth, a proven business model and experienced management – we were confident that investors would at least be receptive to hearing our story and our vision.
Did you know Synaptics would be the first IPO of 2002? Were there any concerns about that?
I think there was actually another company on the road ahead of us [Alliance Medical], so we didn’t go out there with the intention of being the first. But we did go out there with the intention of being one of the first companies. We felt by doing that, it would give us the opportunity to get very focused attention from prospective investors. As for concerns, no, we were actually pretty confident that if we could get out there we could get the deal done.
Prior to the offering, your price range was cut from $10 to $12 to $9 to $11. Were you concerned the market was too weak to sustain that lowered range?
No, it was clear that in today’s market environment investors were looking for real companies with reasonable valuations. In order to kick off the road show, we knew we would have to provide a reasonable discount to attract investors’ interest in hearing the company’s story and vision, which resulted in lowering the range. We believe, again, that the financial markets are looking at IPO candidates in a more traditional way, which in the past has included profitability as one of the key criteria.
All things considered, we were very happy with where we priced the stock, which was at the high end of the revised range, and the mid-point of our original filing range. We’ve also been very happy with the after-market performance, which has been very strong.
We believe that even at today’s value, we still represent good value to investors based on our position in our core notebook market and our ability to leverage our technology into some of the new emerging markets.
Why did you choose Bear Stearns to lead the deal?
We interviewed over 18 investment banks and, during that process, we focused on the strength of their research analysts, their understanding in the positioning of our company… and the chemistry with the entire banking team and the importance that our transaction would represent to the bank generally. We did over 100 reference checks on the banks that we had interviewed as we went through this process. At the end of that, we felt that Bear Stearns’ team represented the best for our company. The results speak for themselves.
What was the rationale behind the shuffling in your syndicate list prior to the IPO?
The investment banking business was not immune to the job cuts that we saw in many industries last year. Our initial banking team was directly impacted by those job cuts. Both Banc of America Securities and ABN AMRO chose, for whatever reason, to lay off the analysts that had initially signed up to be a part of the Synaptics transaction.
Consequently, we mutually agreed that it didn’t make sense for them to continue to participate. It was an amicable parting and the door is certainly open for us to work together in the future, but it really was a function of the terrible industry environment generally and the impact that had on the investment banking community.
In December, when we went back to fill up the banking team, we added Soundview Technologies to the line-up because we thought our company position went well with their research coverage and direction.
Synaptics originally filed to go public in February 2001. Was it different selling your story this year compared to last?
Not really. We really didn’t tell our story to investors, as we decided to wait. The market environment for IPOs in 2001 was terrible. There were only  high-tech IPOs for the entire year, but [eight] of those occurred in the fourth quarter, which signaled to us that investors were again willing to listen to new equity offerings, and that led us to our decision to move forward with the road show in early January.
As a high-tech company, what were the advantages of being publicly traded now, as opposed to waiting a year or so?
We wanted to take advantage of both the credibility and the [stock] currency that comes with being a public company. We believe that will help us leverage our experience in technology and our engineering know-how into the new emerging markets where the interface solutions will be the key differentiator in determining end-user acceptance.
What do you see happening this year within both of your core markets: high technology and mobile communications?
We actually participate in the sweet spot of the PC industry. Notebook computers are forecast by IDC to continue to grow at more than a 12% compound annual growth rate over the next four years.
In addition to that organic growth, we expect to continue to gain share within that market segment. In terms of newer, emerging markets, we continue to be engaged in discussions in non-recurring engineering work related to emerging hand-held mobile computing and communication devices such as PDAs and smart phones. We’re pretty optimistic about our ability to leverage our technology into those new markets.
Was there pressure from your private equity backers to complete the IPO?
Our investment group has been very supportive of the company. The early investors have been involved since mid-1986. The last round of private equity financing we did was in late 1995, so clearly that’s what is referred to as “patient capital” out there in the market, and we certainly benefited from that.
How receptive have the venture backers been to the stock’s performance?
Our initial investors are very pleased with the deal. In today’s market environment, everyone’s very happy with the performance in the aftermarket. Clearly it’s been, if not the highest gainer of the year, one of the highest gainers of the year to date.
(Among venture-backed IPOs, PayPal edged out Synaptics with a 15.2% rise from its offering price as of Feb. 28. In contrast, Synaptics was up 14.6%. For the year, a total a nine companies have gone public and are up just 7.2% from their offering prices. – Ed.)
Any plans to tap the private equity markets again or perhaps do a secondary offering?
Well, we just completed the IPO and we really haven’t sat down to think about a follow-on offering, although that’s always a possibility. We’re not a company that needs to have a lot of capital to ensure manufacturing capacity because we outsource all of that, so the proceeds will be used to continue to grow our technology base, because that’s really the strength of our company.
Given that we’re a public company now, it’s not likely that we would go back again and use the private equity market, although I’ve been around long enough to know you should never say never.
Colleen O’Connor can be contacted at:Colleen.Oconnor@tfn.com