SPS Commerce IPO: Return of small cap deals?

Posted Dec 4th 2009 2:30PM by Tom Taulli
Filed under: Small Business

While the IPO market has been making a comeback, the fact remains that small cap deal activity has been fairly light -- especially in the tech sector. But we may be seeing a thaw.

Just take a look at SPS Commerce, which filed for an IPO this week.

Basically, the company operates an on-demand platform for supply chain management (located at SPSCommerce.net). Some of the tools include collaboration, connectivity and data analytics. With such things, a company can reduce costs, optimize inventory and shorten supply cycles.

In all, SPS has about 37,000 customers. Although, more than 11,000 pay a monthly subscription fee, which allows for a nice recurring revenue stream.

By using the on-demand approach, SPS has a variety of advantages. It's easier to update the software and track usage. Customers also get benefits in terms of minimal hardware and maintenance costs.

However, in the enterprise space, there are problems. Perhaps the biggest is dealing with the complex legacy information technology (IT) systems. To this end, SPS has 2,700 pre-built integrations that work with the systems of 1,300 retailers, grocers and distributors.

Despite all this, SPS is still a relatively small company. From 2006 to 2008, revenues grew from $19.9 million to $30.7 million.

In other words, the SPS deal should be an indication of whether investors are warming up to small cap offerings. But, we won't know until the first quarter of 2010, when the company hits the markets.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: inthenews, IPOs, SPS Commerce