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Summary

  • GLOB is an IP consulting company with an uneven profit history, after removing 'bond sales' profits' which are not recurring.
  • Compared to EPAM Systems (EPAM) & Cognizant Technology (CTSH), GLOB is at a P/E premium, a price-to-sales discount and in the same range for price-to-tangible book value.
  • The rating on GLOB is neutral.

Based in Luxembourg, Globant S.A. (Pending:GLOB) scheduled a $76 million IPO on the NYSE with a market capitalization of $389 million at a price range midpoint of $12 for Friday, July 18, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: J.P. Morgan, Citi, Credit Suisse

Joint Managers: William Blair, Cowen & Company, LOYAL3 Securities

End of lockup (180 days): Wednesday, January 14, 2015

End of 25-day quiet period: Tuesday, August 12, 2014

Summary

GLOB is an IP consulting company with an uneven profit history, after removing 'bond sales' profits which are not recurring. See 'competition' below.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Annualizing adj Q1 '14 earnings

Globant S.A.

$389

2.3

42.3

n/a

4.7

20%

*as adjusted book value not available

Compare

Globant S.A.

$389

2.3

42.3

n/a*

4.7

20%

EPAM Systems (NYSE:EPAM)

$1,840

2.9

26.4

4.6

5.2

Cognizant Technology (NASDAQ:CTSH)

$30,430

3.1

21.8

4.6

5.0

Conclusion

Compared to EPAM Systems & Cognizant Technology, GLOB is at a P/E premium, a price-to-sales discount and in the same range for price-to-tangible book value.

The rating on GLOB is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

GLOB is a new-breed of technology services provider focused on delivering innovative software solutions that leverage emerging technologies and related market trends.

GLOB combines the engineering and technical rigor of IT services providers with the creative approach and culture of digital agencies.

GLOB is the place where engineering, design and innovation meet scale. GLOB's principal operating subsidiary is based in Buenos Aires, Argentina.

GLOB's clients are principally located in North America and Europe and for the three months ended March 31, 2014, 79.9% of its revenues were generated by clients in North America and 7.1% of its revenues were generated by clients in Europe, including many leading global companies.

Over the last several years, a number of new technologies and related market trends, including mobility, cloud computing and software as a service, gamification, social media, wearables, internet of things and "big data" have emerged that are revolutionizing the way end-users interface with information technology and are reshaping the business and competitive landscape for enterprises.

As enterprises adjust their business models to adapt and benefit from these changes, they are increasingly seeking solutions that not only meet the rigorous engineering requirements of emerging technologies, but that also engage the end-user in new and powerful ways.

GLOB believes this dynamic is creating an attractive opportunity for technology service providers that have the engineering rigor, creative talent, and culture of innovation to deliver these solutions.

GLOB seeks to deliver an optimal blend of engineering, design, and innovation to harness the potential of emerging technologies to meet its clients' business needs.

Since its inception in 2003, GLOB has believed that while engineering is central to information technology, only by combining strong engineering capabilities with creativity and agility can GLOB deliver innovative solutions that enhance end-user experiences while meeting its clients' business needs.

GLOB's commitment to this differentiated approach is reflected in three core tenets of its company: organization by technology-specialized practices called Studios; emphasis on a collaborative and open Culture; and Innovation and creativity in technology and design.

To contribute to these core concepts, GLOB has made and continue to make significant ongoing investments in developing an operating environment that fosters innovation, creativity and teamwork, while ensuring a commitment to quality and project discipline.

Customer concentration
Due to the growth of the client base, the percentage of revenues attributable to the top ten clients declined to 39.7% in 2013 from 45.0% in 2012 and 54.7% in 2011, reflecting GLOB's ability to add new clients to its client base.

Seasonality
GLOB's business is seasonal and as a result, revenues and profitability fluctuate from quarter to quarter. Revenues tend to be higher in the third and fourth quarters of each year compared to the first and second quarters of each year due to seasonal factors.

Dividend Policy

No dividends are planned.

Intellectual Property

GLOB has developed a number of proprietary internal tools that GLOB uses to manage its projects, build applications in specific software technologies, and assess software vulnerability. These tools include Glow, Katari, Nails, GLOB's Digital Platform, its semantic banking application, and Vulneris.

GLOB's registered intellectual property consists of the trademark "Globant" (which is registered in eleven jurisdictions, including the United States and Argentina) and one pending patent application in the United States.

Competition

GLOB faces competition primarily from:

large global consulting and outsourcing firms, such as Accenture, Capgemini, Sapient and IBM;

digital agencies and design firms such as SapientNitro, RGA and Ideo;

traditional technology outsourcing IT services providers, such as Cognizant Technology

Solutions, EPAM Systems, GlobalLogic, Aricent, Infosys Technologies, Mindtree HCL, Tata and Wipro; and

in-house product development departments of its clients and potential clients.

5% stockholders

Riverwood Capital LLC 19.89%

FTV Partnerships 17.97%

Riverwood Partnerships 9.41%

WPP Luxembourg Gamma Three S.à. r.l. 20.64%

Paldwick S.A. 5.58%

Use of proceeds

GLOB expects to net $33 million from its IPO. Proceeds are allocated as follows:

$8 - 10 million to repay all or part of its U.S. subsidiary's working capital facility with Bridge Bank, as well as certain lines of credit of its principal Argentine subsidiary. Advances under the working capital facility accrue interest at Bridge Bank's prime rate plus an applicable margin ranging from 3.25% to 4.00%, depending on the amounts drawn, which is due monthly, and the maturity date of the facility is May 6, 2015. GLOB's principal Argentine subsidiary's lines of credit are denominated in Argentine pesos and bear interest at fixed rates ranging from 7.0% to 21.5% and have maturity dates ranging from June 2014 to December 2017;

$10 - 12 million for capital expenditures associated with investments in new offices and IT infrastructure to support its planned growth;

$12 - 15 million for future strategic acquisitions of, or investments in, other businesses or technologies that GLOB believes will complement its current business and expansion strategies. GLOB has no definitive agreements or understandings with respect to any such acquisitions or investments, however, GLOB continues to seek new acquisition opportunities; and

any remaining amount for general corporate and working capital purposes.

Disclaimer: This GLOB IPO report is based on a reading and analysis of GLOB's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Globant S.A.