End of the road for Irish tech stocks?


28 Nov 2002

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Delistings, share buybacks, management buyouts and accounting irregularities are the stuff of Ireland’s technology stocks that once held the mighty Nasdaq and FTSE 100 in thrall.

The current predicament of publicly listed Irish tech firms could be simply described as messy. Stalwarts of the leading listed firms are considering delisting from the stock markets altogether, other one-time Irish success stories are being investigated for accounting irregularities, whilst some are buying back their own shares in order to bolster their companies’ value. Could it be the end of Ireland’s small group of publicly quoted technology firms?

Back in the mid-Nineties, young Irish technology firms were being urged to jump on the bandwagon in the same way that young Israeli technology firms were swarming to Nasdaq. Everyone from finance houses to tech firms were inspired by the sudden and unexpected floatation of Trinity College spin-off Iona Technologies, which, in 1995, became the world’s fifth largest initial public offering (IPO) in history. What followed was a co-listing in various locations between Dublin, London and US-based Nasdaq by a slew of star tech companies including Baltimore Technologies, SmartForce, Riverdeep, Alphyra, Horizon Technologies, Conduit and Parthus floating and raising the currency for expansions, acquisitions and the rewarding of staff with stock options.

Since the implosion of the technology boom, every single one of these companies has seen their share prices plummet to unimaginable depths as they struggle to make money in various markets where spending has dried up. Almost all of these floated firms have had to cut staff and, in the case of Trintech, share buybacks and other efforts have been made to ensure that staff could be compensated for falling share option values. Other firms that had been tipped to take the public markets, such as conferencing software firm Spectel, have opted to remain private firms going forward.

Only in recent weeks, however, has the future of Irish publicly quoted tech firms come under the spotlight. Decisions by e-commerce player Riverdeep and communications firm Alphyra to delist have prompted speculation that it is the end of the line for Ireland’s once great troop of publicly listed firms.

Such decisions have led to fears that the Irish Stock Exchange’s ITEQ index may be seriously undermined by the decision by these firms to delist. The ITEQ was established in September 2000 at the height of the dotcom glory days with a market capitalisation of more than €3bn. However, with the downfall of the technology sector globally, only eight out of an expected 40 tech firms are listed on the ITEQ index, which is currently valued at €800m. If Alphyra and Riverdeep delist to pursue management buyouts (MBOs), the value of ITEQ could fall to around €500m.

Another once-celebrated Irish tech stock in the doldrums is e-commerce giant SkillSoft, formerly known as SmartForce, which is under investigation for improperly accounting for revenues over a three-year period. The company is understood to have booked up to €40m in revenues earlier than it should have during the technology boom of 2000 and 2001. When the news hit the wires last week, the share value of SkillSoft fell by almost 35pc. The crisis facing SkillSoft comes hot on the heels of similar revelations of accounting irregularities at Elan and Baltimore Technologies.

Perhaps the only semi-positive news to come from Irish tech stocks was the market reaction to approval by the Irish Takeover Board to allow e-payment firm Trintech to commence a €5m share buyback plan in December. This plan will help the company prop up its share price, which recently hit a record low of 83 cents on the Nasdaq.

So, is it the end for Irish technology stocks? Not so, says Davy Stockbrokers’ head of technology research, Barry Dixon. “All of these companies that are currently listed are in very different niches in the IT sector,” he says. “Irish stocks have underperformed due to the general falloff in the tech sector globally. They are facing the same problems as other publicly listed companies. What is allowing these companies to survive is the fact that they have very strong cash reserves.

“Iona Technologies, for example, has strong cash reserves and is operating in a niche that unfortunately is suffering in terms of demand. The market is acting against it, but it has enough cash to survive. The same can be said for Parthus, which merged with Ceva last month. It is still on Nasdaq and has cash reserves of around €80m. Trintech is the same story ¯ it has enough cash reserves to survive until the market turns around. The future of Irish tech companies is to have a strong balance sheet. Alphyra’s decision to go private is an opportunistic move and the company had specific reasons for doing so.

“In terms of the ITEQ, it is likely to lose two or three listed members over the coming months. However, if the markets turn more and more Irish companies will eventually float. For private tech companies, survival is critical. Going public is the end game, but in the current market it is impossible,” Dixon concludes.