As was expected, online publisher Lulu plans to bypass the U.S. stock exchanges in favor of going public in Canada -- and in the process has provided the public with a first look at its financials.
The Raleigh-based company filed a preliminary prospectus with Canadian regulatory authorities Friday. It was short on specifics, such as how many shares the company expects to sell or what price it expects to get, but it did indicate that the business had been losing money but turned profitable in the fourth quarter.
The 112-employee company that operates Lulu.com hopes to go public next month, according to the filing.
Listing the stock in Canada can be cheaper and involves less-rigorous regulatory scrutiny than a listing on a U.S. stock exchange.
U.S. investors could still buy Lulu shares. In addition, Lulu could generate investor interest and later shift to a U.S. stock market.
CEO Bob Young, who started Lulu in 2002, also has strong Canadian ties. He grew up in Canada and is the owner of the Hamilton Tiger-Cats of the Canadian Football League.
Lulu is wading into an IPO market that is much-improved from last year's dismal showing, said John Fitzgibbon, publisher of IPOScoop.com in Edison, N.J.
Last year, just two companies went public in U.S. markets through the end of March, Fitzgibbon said. So far this year, 20 companies have successfully run the gantlet, in large part because of the improved performance of the stock markets.
To get deals done, however, many companies end up cutting the share price of their offerings, Fitzgibbon said.
A successful IPO depends on attracting sufficient interest among investors, who in turn are influenced by the ups and downs of the stock markets. IPOs can be delayed or scrapped if they fail to attract enough investors.
Young has an enviable IPO track record. He was chairman and CEO of Raleigh-based Red Hat when it sold $84 million worth of stock in its IPO, then saw its shares jump 272 percent on its first day of trading -- at the time the eighth-biggest advance in Wall Street history. But that happened in a different era -- in 1999, during the height of the dot-com boom.
MRX acquisition
Lulu is best-known for helping authors self-publish books, but people also can self-produce calendars, CDs and DVDs. It collects fees for the books it sells and also provides services to authors. In addition, it sells e-books, including some well-known titles from other publishers, and its weRead.com helps readers find new books and authors.
In its regulatory filing,Lulu disclosed that last week it acquired MRX & Associates, a Canadian company owned by Young that develops Web sites for sports leagues and other sports entities, for as much as $2.2 million in notes.
The prospectus points out that both Lulu and MRX are in the business of making money by helping content creators make money. Acquiring MRX gains Lulu access to new customers and "with our combined products offerings we can help sports properties monetize content in additional ways," the prospectus states. MRX's revenue and staff size weren't disclosed.
Lulu spokesman Jonathan B. Cox said the IPO filing puts the company in "a quiet period" that prevents it from speaking about the stock sale or providing additional details about its operations.
Young will own a majority of the company's stock after the IPO, according to the prospectus.
Losses and a profit
Lulu lost $13.8 million in 2008 and $1.9 million last year. But in the fourth quarter it turned profitable, earning $140,000 versus a loss of $4.6 million a year earlier.
Lulu posted a 39 percent jump in revenue in 2008, but last year its revenue rose a modest 4 percent to $31.6 million. The company attributes the flattening revenue to the sour economy and lower spending on sales and marketing designed to boost profitability.
The prospectus doesn't specify how much the company plans to raise by selling stock in its initial offering plus a secondary offering that will follow immediately. Dow Jones Newswires reported in January that Lulu planned to raise as much as 50 million Canadian dollars, or 49 million in U.S. dollars.
The initial and secondary offerings will include exchanging stock to pay off $15 million owed to a company owned by Young. The money from that loan was used for "general corporate purposes," according to the prospectus.
In addition to paying off that and other debts, Lulu plans to use the proceeds from its offerings to expand its sales and marketing activities and add products and features.
Young's total compensation last year was $300,000 -- all of it salary. He doesn't participate in the bonus plans set up for other Lulu executives.
"Mr Young believes that his base compensation should be set at a relatively low level in relation to market practices, reflecting the fact that his majority equity position directly aligns his interests with those of the shareholders," the prospectus states.
