Broadview Pulls IPO

Broadview Networks Holdings Inc., an integrated communications provider, withdrew its IPO registration late yesterday. The company isn’t alone in its retreat. Since the Nasdaq took a nosedive in the spring, the communications provider sector has fallen out of favor in the IPO market and several providers have had a hard time getting out of the gates.

“This is a case of another sector being over-funded,” says Fred Wang of Trinity Ventures. “It’s not unlike what happened to the e-commerce companies. They’ve been over-hyped and given a lot of capital investment. Now investors want to see delivery.”

Broadview first registered its $125 million IPO in February 2000. After several delays, pricing terms were set in late March. But Goldman Sachs & Co., the lead underwriter, continued to delay the final pricing. Finally, seven months after it registered with the Securities and Exchange Commission, the company withdrew its filing.

Broadview’s S-1 filed with the SEC back in February shows that for fiscal 1997 and 1998 Broadview actually made a profit. In 1999, even though losses nearly quadrupled, the company was still only down $400,000.

Compare this with two of the hottest IPOs that went out this summer: Avici Systems Inc. (Nasdaq: AVCI) and Corvis Corp. (Nasdaq: CORV) (see Avici and Corvis Make Stunning Debuts). Avici, which reported $500,000 in revenue, had losses of $46.7 million for 1999, according to its original S-1. The offering price went up 200 percent in its first day of trading and was up five points today to close at $136 a share. Corvis isn’t even expected to report revenue until the third quarter of this year, and it reported losses close to $100 million just in the last quarter alone (see Corvis Mania Continues). Still, it more than doubled its first day and is still trading high around $92 a share.

What’s going here? It’s really very simple. Avici and Corvis are in infrastructure equipment, a very hot market, while Broadview is not.

“The public appetite for communications service providers is just not there,” says Wang. “There isn’t enough room in the public market for them. It’s not necessarily an indication that Broadview is in trouble. It’s endemic across that sector.”

Indeed, Broadview is not alone. Jato Communications Corp., a DSL provider, withdrew its IPO back in April. Several other local service providers, including Birch Telecom, Flashcom Inc., and Onsite Access Inc. have indefinitely delayed their IPOs.

“The public capital markets are not receptive to integrated communications providers at this time,” says Laura Abbott, a spokesperson for Broadview.“We intend to refile as soon as our company shows that the market has improved.”

This doesn’t mean that all the funding has dried up for smaller service providers. Broadview announced in July that it had secured $122 million in private funding from Baker Capital; The CIT Group; The Growth Fund of America, a fund managed by Capital Research and Management Company; Innovative Technology Partners; New Enterprise Associates; and Teachers Insurance and Annuity Association of America.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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