Cramer Preps an IPO

Inventory management specialist Cramer Systems Ltd. is preparing for an initial public offering (IPO) of its stock on the London Stock Exchange in 2005, according to a company spokesman.

The OSS firm, arguably the leading player in the inventory management market (see Report Names Inventory OSS Winners), has been racking up contracts with major carriers and expanding during the past year, and it is one of the software suppliers at the heart of BT Group plc's (NYSE: BTY; London: BTA) next-generation network (see Cramer Wins Down Mexico Way, Cramer Meets BT's Speed Needs, Cramer Enters Expansion Mode, and Cramer Cracks Japan).

According to Robert Curran, Cramer's director of corporate communications, that growth has led to significant leaps in revenues over the past two years. In the company's financial year ending July 2004, Cramer recorded revenues of $65 million, up 67 percent from the previous year's $39 million. In 2002, Curran says Cramer's revenues were about $22 million.

Now the software developer is laying the groundwork for a potential listing, "but only at the right time – maybe in about 12 months," says Curran. "The business is doing really well, and this seems like the best course of action. We always wanted to grow a valuable company for our stakeholders."

And given that Cramer's backers have invested little more than $25 million in the firm, they look poised to gather a reasonable payback, though there is no indication at present what percentage of the company will go public or how much Cramer is looking to raise. Kennet Capital was Cramer's seed investor (small, unknown amount) in 1999, and it pumped in a further $3 million in October 2000, when Broadview Capital Partners joined in with a $22 million investment.

Given the company's current revenues, its ongoing growth, and the fact that archrival Granite Systems was swallowed up earlier this year by Telcordia Technologies Inc., which is itself now up for sale, Cramer is well placed to capitalize on a growing market (see Telcordia Shells Out at Last and Source: Telcordia Sends Out Feelers).

Sector analyst Mark Basham at OSS Observer believes Cramer's valuation is likely in the $100 million to $150 million range, and that the opportunity for the firm is "massive." Says Basham: "Every service provider out there will need an enterprise-wide inventory system that can deliver useful information to multiple parts of the business, from engineers to the marketing team. Carriers like BT are among the early adopters, but this market is now coming alive. The market could be worth several billion dollars a year in the future."

And with the transitions in progress at Telcordia, Cramer is even better placed to win the biggest deals, says Basham. In addition, he believes the markets will be impressed that Cramer has built "a substantial business largely on a European customer base. If they can crack the North American market, this company can really rock."

Basham also believes this move is not just a matter of the investors and management cashing in on the current success. "They probably see themselves as acquirers. They're looking to grow the company, and there are a number of solutions that would fit neatly around their inventory system, particularly in the service fulfillment sector," he reckons.

And there's always the prospect that another company might step in with an acquisition before any IPO can take place. "If a company like Amdocs Ltd. (NYSE: DOX) is serious about this sector, then why wouldn't it go after Cramer?" asks Basham. Amdocs almost snatched Granite from under Telcordia's nose earlier this year (see Telcordia Nearly Blew Granite Deal and Amdocs on the Prowl?).

Cramer says it hasn't seen any uptick in acquisition interest since Telcordia bought Granite, but that it would obviously consider any offers that came along "at the right price," says Curran.

— Ray Le Maistre, International News Editor, Light Reading

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