In a public filing this week, SuccessFactors estimated that its net proceeds from the IPO would range from about $89.8 million to roughly $104.8 million. The shares trade on the Nasdaq Global Market under the ticker symbol “SFSF.”
SuccessFactors competes in the red-hot field of “talent management” software, which refers to applications for key human resources tasks such as recruiting, performance management and employee development. Talent management applications are among the fastest-growing products in HR software, which is itself the fastest-growing category of business software. Thanks in part to concerns about talent shortages, revenue from “human capital management” software applications is slated to rise 11 percent annually between 2006 and 2011, to $10.6 billion, according to AMR Research.
SuccessFactors and other talent management specialists typically offer “software as a service” that is accessed over the Internet and paid for on a subscription basis. This on-demand model promises quicker implementations, lower upfront costs and reduced maintenance hassles compared with the traditional tactic of running business software on a customer’s internal computers.
The HR software market is in the midst of consolidation. SuccessFactors’ IPO gives it a war chest that conceivably could be used to snap up other players. The company said its main reasons for the IPO include increasing public awareness of the firm and its ability to obtain additional capital. The firm said it plans to use some of the proceeds to pay off its debt, which totaled about $20.7 million as of September 30, and related prepayment fees of about $300,000.
“We expect to use our remaining net proceeds from this offering for general corporate purposes and working capital, including potential investments in technologies, applications, software or assets, and acquisition of companies that complement our business,” SuccessFactors said in its filing.
The company added: “We have no present negotiations or current agreements or commitments with respect to any material acquisitions.”
SuccessFactors’ IPO success came despite mounting losses at the firm. In a public filing this week, the company said it incurred net losses of $5.3 million in 2004, $20.8 million in 2005, $32.0 million in 2006 and $49.2 million in the nine months ended September 30, 2007. On the other hand, SuccessFactors said its revenue has grown from $10.2 million in 2004 to $13 million in 2005, $32.6 million in 2006, and $44.1 million for the nine months ended September 30.
In a July blog posting, Jason Corsello, vice president at consulting firm Knowledge Infusion, described SuccessFactors’ strategy as a “ ‘cold war’ approach to the market, focused on outspending the competition.” He added: “This strategy will pose a significant challenge to many vendors that don’t have the financial resources [or] the ambition to dominate the market.”
The IPO involves 10.79 million shares. Of those, 10 million are being offered by SuccesFactors and 790,000 are being offered by certain stockholders, the company said. The offering is expected to close November 26. The underwriters have been granted an option to buy up to an additional 1.6 million shares of common stock from SuccessFactors to cover over-allotments, if any.