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Tech companies ‘re-potting’ in US
Stock-exchange arbitrage lures private-equity, hedge funds
By Alistair Barr, M...
Superdata Chairman Anbin Cen said the company’s                Like Superdata, the search for a higher valuation was
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Marketwatch Repotting

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  • I respectfully disagree with a couple of the ideas on Steve Gelsi/MarketWatch at the 2008 Financial Follies especially as it has to do with marketwatch but will research this further externally on Sunday to see how I feel about this.
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  • Don't you find that you are both arguing the same point? I suggest you go over all of Steve Gelsi/MarketWatch at the 2008 Financial Follies, then Google marketwatch and make you mind as arguing until Sunday probably won't make any difference.
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  • I respectfully disagree with a couple of the ideas on Live Marketwatch especially as it has to do with marketwatch but will research this further externally on Wednesday to see how I feel about this.
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  • I had been searching for someone to prove this point about marketwatch for a little while, actually I have been searching since last Saturday, as, as you know, a lot of posts or should I say all posts except the ones on: Steve Gelsi/MarketWatch at the 2008 Financial Follies, are promoting the opposite position, so I'm glad I found this.
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  • Most of the opinions on: Steve Gelsi/MarketWatch at the 2008 Financial Follies do make sense and are thought provoking: especially when you write about marketwatch. How did you reach this opinion as, up to this Saturday, I thought the complete opposite?
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Transcript of "Marketwatch Repotting"

  1. 1. MARKETS Tech companies ‘re-potting’ in US Stock-exchange arbitrage lures private-equity, hedge funds By Alistair Barr, MarketWatch U.S. have traded between 20 and 30 times earnings January 26, 2006 on average for the past two decades, he said. SAN FRANCISCO (MarketWatch)—David Liu, an “Simple comparisons like this are difficult, but all other investment banker at Jefferies Broadview in things being equal, a technology company listed in Silicon Valley, calls it “re-potting,” but it could the U.S. could get twice the valuation of a similar also be described as stock-exchange arbitrage. company listed overseas,” Liu added. “It’s a form of arbitrage between U.S. and overseas markets.” In the past two months, Liu has helped private-equity firm Francisco Partners and hedge fund giant Och-Ziff Och-Ziff Capital Management buy out technology companies listed on non-U.S. exchanges. Arbitrage was the original expertise of Och-Ziff founder Daniel Och, who in the 1980’s worked at The targets—software company FrontRange Solutions Goldman Sachs’s (GS) risk-arbitrage group alongside Inc. that traded on South Africa’s Johannesburg Stock other future hedge-fund leaders such as Richard Perry Exchange, and Hong Kong-listed Superdata Software of Perry Capital, Thomas Steyer of Farallon Capital Holdings Ltd.—are now considering re-listing on the Management, and Eddie Lampert of ESL Investments. technology-heavy Nasdaq Stock Market (NDAQ) in the U.S. Och-Ziff, which oversees more than $10 billion, has been focusing in recent years on negotiating transac- The goal is to garner a higher valuation for the com- tions that fall between the private-equity and hedge panies by tapping into a larger, more sophisticated fund worlds. investor base in a culture that appreciates technology companies more, Liu explained. The firm has also expanded in Asia, setting aside about $1 billion to invest in the region. “In Asia, the mentality is that software isn’t worth much, especially when you can find copies of Superdata Windows (Microsoft’s operating system) in the local market for a dollar,” he said. “So there’s not so much Superdata, which has a partnership with Intuit Inc. respect for certain technology companies.” (INTU), agreed to be de-listed in December. Och-Ziff provided the capital-almost $50 million—to make the In South Africa, investors are more focused on the transaction happen. mining and resource companies that dominate the economy, he added. Och declined to comment. The differences show up in the valuation of similar Jefferies Broadview, the technology division of Jefferies technology companies listed on different exchanges, Group (JEF), arranged the financing for the deal, Liu noted. which Liu thinks may be the first buyout in Hong Kong backed by a financial sponsor. In Hong Kong, the few enterprise software companies that are listed have price-to-earnings ratios in the low Morgan Stanley (MS), Platinum Securities and First teens, while traditionaly license software firms in the Shanghai were advisers on the deal too.
  2. 2. Superdata Chairman Anbin Cen said the company’s Like Superdata, the search for a higher valuation was board decided to leave Hong Kong’s Growth Enterprise one of the main reasons FrontRange decided to go pri- Market (GEM) because its shares didn’t trade enough vate and leave the JSE. to provide good liquidity for investors and the firm wasn’t followed by any analysts. “The JSE would not be able to deliver the right valua- tion to a company like ours: a global software firm That left the company with a “relatively low valuation that’s growing earnings and revenue,” Kevin Smith, given the rapid growth of the business,” Cen added. vice president of products at FrontRange, said. “Multiples awarded to market leaders on Nasdaq are Investors in Hong Kong aren’t that passionate about simply higher than on other exchanges.” companies like Superdata, partly because most tech- nology stocks on GEM haven’t performed very well Going public again on Nasdaq is one of several options during the exchange’s short history, Cen explained. FrontRange and Francisco Partners are considering, Smith added. quot;Very few” investors understand technology companies and find it hard to imagine firms developing into suc- Politics cessful giants like Microsoft (MSFT), Intel (INTC), Cisco Systems (CSCO), he explained. Vibrant stock exchanges are a potent sign of a coun- try’s economic health, so there was an aura of political quot;They don’t have Silicon Valley, so it’s hard for people sensitivity over the Superdata and FrontRange deals. to imagine these tech companies,quot; Cen said. Superdata’s Cen said he and his colleagues were con- Going public again on Nasdaq is one of Superdata’s cerned about the political fallout from a de-listing options, he added. when they were initially discussing the plan. But work- Two of Superdata’s largest original shareholders were ing with Hong Kong regulators on the project didn’t Chinese investment firms with experience of taking end up being difficult, he said. companies public in the U.S.: Baidu.com (BIDU) seed Still, political and currency risks, combined with the investor IDG Technology Venture Investment and CDH, challenges of language and the more volatile reputa- which backed Focus Media (FMCN) . tion of technology companies, meant that Och-Ziff IDG and CDH remain shareholders of Superdata. wasn’t able to issue any debt to finance the Superdata deal, Liu said. FrontRange FrontRange’s Smith said the company didn’t confront FrontRange, which sells customer-relationship-manage- much political pressure, partly because shareholders ment software and other business applications, was had seen the stock rally strongly during the 18 months acquired by Francisco Partners, a $2.5 billion private- before the deal with Francisco Partners. equity firm, in December for more than $200 million. Unlike Superdata, the FrontRange buyout was partly Neil Garfinkle, a partner at Francisco Partners, didn’t financed with debt. return calls asking about the deal. Blueprint FrontRange started as part of a South African con- glomerate, but ended up becoming the main entity Despite potential political risks, Liu is hoping to re-pot within the group. other technology companies with private-equity and hedge-fund backing and sees candidates in countries That left its shares trading on the Johannesburg Stock such as Taiwan and Singapore. Exchange (JSE), despite the fact only about 5% of its revenue comes from South Africa and its headquarters “We now have a blueprint for taking a company out are in Dublin, Calif., east of Silicon Valley. of these markets and we’re looking at this globally,” he said. Almost two-thirds of FrontRange’s sales are generated in the Americas and the rest from other parts of the Alistair Barr is a reporter for MarketWatch in San world. Francisco. For more information please contact David Liu, Jefferies Broadview dliu@Jefferies.com or visit www.jefferies.com

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