IT-BPO Board at the Colombo bourse under serious discussion
The Colombo Stock Exchange (CSE) is gearing itself to attract as many firms as possible and this time the focus and target is on companies in an industry-wise context. The CSE together with the Securities and Exchange Commission (SEC) is deliberating the creation of a new IT-BPO board.
“This is under discussion by stake holders and the regulators and at this stage some of us are discussing on how to value, the IT and Business Process Outsourcing (BPO) firms which plan to go public,” an industry source told the Business Times. He said that the Sri Lanka Association for Software and Service Companies (SLAASCOM) is in talks with CSE and the SEC pertaining to the best options for taking IT companies public.
According to CSE officials amongst the options is an IT board creating a holding company and listing it on the stock exchange. “We are also deliberating on creating a venture capital company and getting it to go public and then directing smaller IT firms to draw funds from this company,” a CSE official told the Business Times.
He said this is similar to Angel investor funding which is where wealthy individuals or groups of individuals will invest money in this venture capital company. “They in turn will provide private equity or second-round funding for growing profitable IT firms who need money to continue to grow.”
The Sri Lankan market is fast learning that many types of IT and software companies mean successful technology ventures have the potential to thrust entrepreneurs to enormous riches. Industry analysts say that most IT firms are in talks with SLAASCOM to explore options of going public. One firm, OpenArc has already made inroads pertaining to this. The company is in discussion with investment banks with regards to going public and it has recently completed its private placement of shares and diluted 19 per cent of its shares to Japanese investors to raise US$ 2.5 million. “With this process the company was further consolidated with sufficient capital for future development and we will be going for an Initial Public Offering (IPO) later this year,” Daya Hettiarachchi, Chairman/CEO OpenArc told the Business Times. He said they are working on valuing the company.
Industry analysts say that valuing software companies largely depend on qualitative, not quantitative, analysis of the company. The story behind a financial metric which includes all the basic factors such as market synergy, technology, patents, distribution, user base, and the management team have to be factored in, the industry source said.
“IT business typically have limited tangible assets compared to most other sectors and more important are the people, since the ability of these businesses to generate profits in the first place is determined by the development, marketing and protection of intellectual property (in the form of computer programming), existing IP and contractual arrangements,” Mr. Hettiarachchi said.
He said that OpenArc’s decision to list on the CSE was because of improved liquidity, higher company value, the ability to make acquisitions or attract and retain employees with the newly public companies stock and greater access to capital at a lower cost.