ForeScout Technologies made a solid though not spectacular Nasdaq debut on Friday after underwriters earlier opted to price the cybersecurity company’s IPO at the top end of the range and upsize the deal by 10% to US$116.2m.
In light of extremely heavy levels of oversubscription, bankers were perplexed the shares did not trade even higher.
The deal was 30 times covered, prompting the syndicate led by active bookrunners Morgan Stanley, JP Morgan and Citigroup to warn accounts that allocations would be light.
The banks ended up pricing 5.28m primary shares at US$22.00, the top end of the US$20-$22 marketing range and up from 4.8m shares at launch.
Debuting on Nasdaq, ForeScout opened at US$26.25 for a 19.3% gain.
A strong tailwind from a string of better-than-expected big tech earnings just ahead of ForeScout’s debut meant the timing was ideal, but this did not translate into a spectacular opening akin to recent tech IPOs such as Roku (up 67.9% on day one) and CarGurus (up 72.4%).
“If anything I am an little surprised it’s not trading higher at the moment,” one ECM banker close to the deal said. “Then again from the issuer’s standpoint and an efficiency perspective, opening up 20% is probably better than up 40%-50%.”
At the IPO terms, ForeScout came at a solid EV/sales multiple discount to nearest comp CyberArk Software. ForeScout was valued at 3.3 times 2018 sales, versus about four times for CyberArk.
Investors also lined up ForeScout against FireEye, Rapid7 and Splunk, though the mixed longer-term record of cybersecurity stocks (particularly FireEye) and ForeScout’s ongoing losses may have been knocks against the deal.
ForeScout, which counts former FireEye CEO David DeWalt as its vice-chairman and a shareholder, grew revenues 32% to US$90.6m in the first half of 2017 but lost US$47.7m in the same period.
The company, founded in 2000, has developed technology that helps companies monitor and access the security threat posed by devices that connect to their networks.
The deal suffered a late wrinkle, though it is unlikely to have materially affected the outcome.
A free-writing prospectus on the day of pricing disclosed that Network Security Technologies had just filed a patent infringement lawsuit against ForeScout. However, this is not unusual for tech IPOs and the timing is typically viewed cynically by investors.
Bandwidth, SendGrid, Stitch Fix, WatchGuard and SailPoint Technologies are expected to launch tech IPOs in the near-term, continuing a strong late-year recovery in tech issuance yet still without many big-name unicorns.