Compuware Files IPO For Its Cloud Operation

There seems to be no lack of appetite for this type of deal

   

Yesterday, Compuware (NASDAQ:CPWR) filed the necessary papers for a public offering of its cloud division, . The plan is to list the company on the NASDAQ under the ticker “COVS.”  Lead underwriters include Credit Suisse (NYSE:CS) and Pacific Crest Securities.

Covisint operates a so-called “cloud engagement” platform, which helps organizations securely connect and collaborate with customers, business partners and suppliers. For the most part, this system is focused on highly regulated industries like autos, healthcare and energy.

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So far, Covisint has over 3,000 customers and 18 million users. Of course, a few of those 3,000 are mega customers that represent a huge chunk of the business. For example, 34% of revenues come from General Motors (NYSE:GM). Other big ones are AT&T (NYSE:T), Daimler (PINK:DDAIF) and the Blue Cross Blue Shield Association.

While this is not necessarily a bad thing, the concentration could present risks. If anything, a company like GM could use its leverage to exact better terms when there are contract renewals.  Besides, there at rivals in the markets, such as IBM (NYSE:IBM).

The good news, though, is that Covisint is one of the pioneers of the cloud industry, having got its start back in 2000. The company thus has lots of experience dealing with tough macroeconomic environments and knows how to keep customers happy.

Plus, growth has been strong. From 2010 to 2012, revenues went from $40.4 million to $74.7 million and adjusted EBITA climbed from $367,000 to $2.6 million.

No doubt, the timing looks good for a Covisint IPO as well since the cloud space has been red-hot. The cloud represents a mega transformation of the traditional software world. The technology — which is delivered via the web — tends to be more cost-effective and allows for real-time data sharing.

As a result, the market forecasts for the cloud are mouth-watering. According to Forrester Research, the worldwide market is expected to go from $61 billion in 2012 to $241 billion by 2020.

It’s no wonder we’ve seem some successful recent deals. Take a  look:

Company Ticker Return (from offer price)
Workday WDAY 145%
ServiceNow NOW 124%
Proofpoint PFPT 42%
Rally Software RALY 33%
WageWorks WAGE 236%

Covisint definitely could add another winner to this list.

With the IPO proceeds — and once it’s free from its corporate parent — Covisint can focus more on the enormous opportunities in the space. The company plans to bolster its sales organization to expand its footprint in the core business segment. But of course, Covisint also wants to enter new verticals, such as financial services and the public sector.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


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