This Week's IPOs I: eTelecare Global Solutions, Aruba Networks, Flagstone Reinsurance Holdings

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Includes: ARUN, ETEL, VR
by: Abbi Adest

IPOs on deck for this week include: eTelecare Global Solutions (ETEL) a voice-based customer care outsourcing concern; Aruba Networks (NASDAQ:ARUN), provider of secure wireless networking solutions; Flagstone Reinsurance Holdings (FSR) a global reinsurance holding company based in Bermuda;

All quotations are from the companies' most recent S-1 filings with links provided for each company.

ETELECARE GLOBAL SOLUTIONS (ETEL)
Business Overview (from prospectus)

We are a leading provider of business process outsourcing, or BPO, services focusing on the complex, voice-based segment of customer care services delivered from both onshore and offshore locations. We provide a range of services including technical support, financial advisory services, warranty support, customer service, sales, customer retention and marketing surveys and research. Our services are delivered from four delivery centers in the Philippines and seven delivery centers in the United States, with approximately 6,800 employees in the Philippines and approximately 3,000 employees in the United States as of December 31, 2006. Our largest clients in terms of revenue for the year ended December 31, 2006 were American Express Company, AOL LLC, Cingular Wireless LLC, Dell Inc., Intuit Inc., Sprint Nextel Corporation and Vonage Holdings Corp., together representing approximately 91% of our revenue.

Offering: 5.5 million shares at $12.50-$14.50. Net proceeds of approximately $65.9 million will be used repay debt.

Lead Underwriters: Morgan Stanley, Deutsche Bank

Financial Highlights:

For the year ended December 31, 2006, our revenue was $195.1 million, our income from operations as a percentage of our revenue, which we refer to as our operating margin, was 9.9% and our net income was $12.2 million. For the year ended December 31, 2005, our revenue was $152.2 million, our operating margin was 2.7% and our net loss was $1.8 million.

ARUBA NETWORKS (ARUN)
Business Overview (from prospectus)

We provide an enterprise mobility solution that enables secure access to data, voice and video applications across wireless and wireline enterprise networks. Our Aruba Mobile Edge Architecture allows end-users to roam to different locations within an enterprise campus or office building while maintaining secure and consistent access to all of their network resources. Our architecture also enables IT managers to establish and enforce policies that control network access and prioritize application delivery based on an end-user’s organizational role and authorization level. We enable our enterprise customers to extend the same user-centric solution to remote locations such as branch offices and home offices connected over the Internet. Our solution integrates the ArubaOS operating system, optional value-added software modules, a centralized mobility management system, high-performance programmable mobility controllers, and wired and wireless access points.

Offering: 8.0 million shares at $8.00 - $10.00 per share. Net proceeds of approximately $64,610,000 will be used for working capital and general corporate purposes, including further expansion of the company's sales and support functions for both direct and indirect sales channels.

Lead Underwriters: Goldman Sachs, J.P. Morgan

Financial Highlights:

In the six months ended January 31, 2007, total revenues increased 85% over the six months ended January 31, 2006, [from $27,655,000 to $51,152,000] due to a $33.1 million increase in product and related professional services and support sales to new and existing customers, partially offset by a $9.6 million decrease in ratable product and related professional services and support revenues...The increase in cost of product revenues in the six months ended January 31, 2007 [$5,150,000] compared to the six months ended January 31, 2006 [$15,863,000], as well as in the three months ended January 31, 2007 compared to the three months ended October 31, 2006, was due to increased shipments of our products to customers...Gross margins improved in the six months ended January 31, 2007 compared to the six months ended January 31, 2006, [from 55.4% to 61.2%].


FLAGSTONE REINSURANCE HOLDINGS (FSR)

Business Overview (from prospectus)

We are a Bermuda-based global reinsurance holding company. Through our subsidiaries, we write primarily property, property catastrophe and short-tail specialty and casualty reinsurance. We diversify our risks across business lines by risk zones, each of which combines a geographic zone with one or more types of peril (for example, Texas Windstorm). To date, the majority of the risks we have reinsured are related to natural catastrophes, such as hurricanes and earthquakes, in North America and Europe, although we also have written a significant amount of catastrophe business in Japan, Australasia and the Caribbean. Substantially all of our reinsurance contracts contain loss limitation provisions such as fixed monetary limits to our exposure and per event caps. We specialize in underwriting low frequency, high severity risks, where sufficient data exists to analyze effectively the risk/return profile, and where we are subject to legal systems we deem fair and reliable.

Offering:13.0 million shares at $12.50-$14.50 per share. Net proceeds of approximately $159.2 million will be used to increase the underwriting capacity of the company's reinsurance operations.

Lead Underwriters: Lehman Brothers, Citigroup

Financial Highlights:

Net premiums written for the year ended December 31, 2006 were $282.5 million which were primarily derived from excess of loss contracts, net of reinsurance...Net income for the year ended December 31, 2006 was $152.3 million, which was principally due to net underwriting income of $100.7 million, primarily reflecting the relatively low level of reported losses, the compensation expense based on the fair value of the Warrant of $3.4 million, net investment income of $34.2 million and net realized and unrealized gains of $12.2 million.

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