Infor SEC Filing Hints at IPO
October 16, 2012 Alex Woodie
A filing with the Securities and Exchange Commission (SEC) that Infor made in August in connection with the refinance of old debt suggests the company is getting its affairs in order in anticipation of an initial public offering (IPO) of stock in the near future. The prospectus included with the filing detailed the company’s business strategy, but made no mention of IBM i or Infor’s many applications for the platform.
The 409-page S-4 filing dated August 23 contained a detailed prospectus, and was made in concert with an exchange offer that Infor recently made with nearly $2 billion in privately held debt. In the S-4, Infor detailed how it would exchange three groups of senior notes that it issued earlier this year, in connection with the completion of the acquisition of Lawson Software for three new groups of senior debt. (Separately, it also proposed refinancing a $750 million “term loan B-2” with another $750 million obtained through a B-2 term loan.
The senior debt exchange offer was initially good through October 5. However, Infor extended the offer through October after about 5 percent of the holders of the old debt hadn’t accepted the offer, (even though holders of the debt would be automatically rolled into the new notes unless they specifically asked not to). The company, which is now headquartered in New York City, also announced that it would hold a meeting this morning to announce the results of the first quarter of fiscal year 2013.
The exchange offer didn’t actually change the terms of the debt. The company would also absorb all the costs in issuing the debt, and said that its level of indebtedness and leverage would not change. Holders of the $560 million of 11.5 percent notes that were originally due in 2018 could exchange those old notes for another batch of $560 million notes paying 11.5 percent and due in 2018. Ditto for the $1.015 billion of 9.375 percent notes due in 2019 and the €250 million in 10 percent notes due in 2019.
So why did Infor want to exchange the notes if the terms were exactly the same? Why would it go through the time and expense of putting together a dense, 266,000-word document and lay out its pro forma results for the last three years, if the rate and expiration date on its debt wasn’t changing?
It appeared to do it for two main reasons. For starters, the filing was necessary to undo a small but important attribute of the notes that limited the holders’ ability to resell the notes in a public market. Secondly, the S-4 contained a detailed prospectus, which is required of companies selling securities on the public market.
First, the restrictions of the old debt. “The exchange offer is designed to provide holders of Original Notes with an opportunity to acquire Exchange Notes which, unlike the Original Notes, will be freely transferable…” the company states in S-4 form. “The Original Notes were issued and sold in transactions not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act. The concurrent resales of the Original Notes by the initial purchasers to investors were done in reliance upon the exemptions provided by Rule 144A and Regulation S promulgated under the Securities Act.”
Section 4(2) of the Securities Act, according to the SEC’s website, exempts companies from the requirement to register transactions that don’t involve any public offering. Organizations that buy debt from companies seeking this exception must be “sophisticated investors,” and the issuer of the debt must provide the same type of information that would normally be found in a prospectus. The buyer of the debt also is prohibited from reselling the debt to the public, according to the SEC.
Rule 144 provides an exemption and permits the public resale of restricted or control securities, according to the SEC website. Meanwhile, Regulation S provides a “safe harbor” that defines when an offering of securities is deemed to be executed in another country and therefore not be subject to the registration requirement under section 5 of the 1933 Act, according to Wikipedia’s entry on the Securities Act of 1933.
Beyond all the legal mumbo jumbo, one line on the first page of the S-4 states Infor’s IPO intent pretty clearly. After the line that states “Approximate date of commencement of proposed sale of the securities to the public,” Infor wrote: “The exchange will occur as soon as practicable after the effective date of this Registration Statement.”
Nevertheless, Infor spokesman Dan Barnhardt says company has not started the IPO filing process: “We do not currently have a timeline for an IPO,” he tells IT Jungle via email. “We did file a form recently that is a legal requirement. While we do not have publicly traded stock, we do have debt that is traded, which requires us to make some similar filings. We did not file initial paperwork to begin this process and have filed nothing related to an IPO at this time.”
A Look Inside Infor
The S-4 also includes a prospectus that provides the first detailed glimpse into Infor’s finances. The company says it had $1.836 billion of revenue in 2010 on a net loss of $95.4 million, $1.873 billion in revenue in 2011 on a net loss of $140.4 million, and $2.540 in revenue in 2012 on a net loss of $310 million. When calculated on an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, the company reports it had profits of $511.8 million in 2010, $511.2 million in 2011, and $792.3 million in 2012.
Most of Infor’s revenues come through maintenance fees. Of the $2.54 billion it brought in last year, nearly half, or $1.284 billion, came from product updates and support fees, compared to $505 million for software license fees, and $751 million in consulting service fees.
The company says it had total assets of $6.55 billion on at the end of fiscal 2012, on May 31, up from $4.680 billion at the end of fiscal 2011. The increase in assets and revenue is largely due to its $1.5 billion acquisition of Lawson that it completed in fiscal 2012.
In fiscal 2012, Infor made 55 percent of its revenues from the Americas, about 35 percent was from EMEA, and 10 percent from APAC. The company says it spent $322.3 million on research and development for the year ended May 31, 2012, or 12.4 percent of revenue, on a pro forma basis. Most of Infor’s expenses are personnel related, although a good chunk of them are to repay debt. “We are highly leveraged and our liquidity requirements are significant, primarily due to debt service requirements,” the company says in its S-4.
The prospectus detailed Infor’s business strategy. Not surprisingly, the company highlighted its favored Infor 10 ERP solutions, including ERP LN (Baan), ERP Syteline, the Lawson S3 and M3 products, and its financial management and human capital management solutions. Entirely missing from the strategy brief were the IBM i-based applications, which is unfortunate given the company’s vocal support for the platform in the past.
The S-4 also contained details on employee compensation for executives. Infor compensates its executives with salaries, bonuses, and stock options. Infor CEO Charles Phillips makes $800,000 per year in salary, and in 2012 was given a $11.8 million performance bonus and a $1.8 million discretionary bonus. He also had about $6 million worth of stock. Co-president of product and support Dunan Angove makes $600,000 per year in salary and in 2012 was given $1.2 million performance bonus and a $2.2 million discretionary bonus.
Co-president of global field operations Stephan Sholl makes $600,000 per year in salary and in 2012 was given $1.05 million performance bonus and a $2.55 million discretionary bonus. CFO Kevin Samuelson makes $500,000 per year in salary, and in 2012 was given a $600,000 performance bonus and a $2.03 million discretionary bonus. Executive chairman Jim Schaper makes $500,000 per year in salary and in 2012 was given a $750,000 performance bonus and a $3.3 million discretionary bonus.
In other news, Infor yesterday unleashed a revamped website, sporting a brand new looking logo. The S-4 can be downloaded from the investor relations section of Infor’s new website at www.infor.com.