Ed Ogonek, CEO of Bridgewater Systems. (Darren Brown, OBJ)

Canada's market for initial public offerings had its worst showing in 2007 in six years, according to an annual survey by PricewaterhouseCoopers released last week. Even with a strong fourth quarter, the 2007 results were the lowest since 2001.

So who would want to try to go public in such a volatile market? Bridgewater Systems of Ottawa was able to complete its initial public offering of over 6.3 million common shares at a price of $5.50 on the TSX on Dec. 14 for a total of $35 million. Although Bridgewater had originally hoped for closer to $75 million, considering the current state of the IPO market, president and CEO Ed Ogonek told the OBJ that he was very happy with the outcome.

OBJ: So when did the plan to take Bridgewater public first materialize?

OGONEK: It's an interesting question to think of what the starting point was, particularly if you look at Bridgewater, because in April '07 we celebrated our 10-year anniversary. When I joined the company in May of '04, everyone, employees, investors, partners, everyone wanted to know what's the exit plan? With the executive team here at Bridgewater (we were looking at) how do we grow the company? We built a plan that focused on an approach to build a public-market calibre company. To some extent you could say that building towards an IPO was a 10-year process for Bridgewater.

A more focused approach towards it was in the last three-plus years. In that time we stepped back and asked: "what would we need to do in order to be a successful public company?" And then we put a plan in place and we were able to achieve very strong year-over-year growth in '05-'06. In '07, we had a chance to look and say, "I think we are at that size and scale now, I think we have enough maturity in our business model and we have the right team that could support a more focused effort towards an IPO."

OBJ: But there was one thing that wasn't quite in place, a strong credit market.

OGONEK: Very important is how receptive the market is to an IPO. One of the interesting aspects in 2007, in particular spring and the mid-part of the year, was that we had a market that appeared to be very open to IPOs. A number of IPOs were successful in getting priced and out to market, when if you look in the past in market experience, it might have not been as big, it might not have had the same revenue or earning profile as other public companies.

OBJ: When the market shifted, you decided to go with the IPO anyway. Why didn't you decide to hold off until the market looked more favourable for IPOs?

OGONEK: We had two main objectives for going public. The first was our overall strategic growth plan. We see a number of key market drivers that are really pushing the need for our solution today in the network. If you look for the growth in wireless broadband services, video services, music, multi-media all over your mobile devices, you look at the market traction with WiMAX ... you look at the market momentum around IPTV.

What we see is a market window that says if we can be successful in taking that additional capital and investing it in the market today, we can scale to the point to be a significant market leader in a high-growth market. So the timing was important for us. If we look at what we could acquire as a small private company, it's limited. If we look at what we can acquire as a public company with a public stock and currency and additional $420 million on our balance sheet ... there's an opportunity for us to establish market leadership now and we think we have to be active over the next 12 to 18 months to establish that leadership.

Secondly, we are a 10-year-old company, so we also have some consideration to provide a path to attract new investors to the company and provide some of our long-standing loyal investors a chance to get some liquidity from a 10-year investment.

OBJ: What were your financial facilitators telling you at the time?

OGONEK: What they were saying to us was if anyone can get an IPO done now, it's a company like Bridgewater. If you look at the IPO market in Toronto from Q4, there were little more than 20 filings and of those, only a third of those were completed. Typically, when someone files, there is a 90 per cent success rate.

OBJ: How did that information affect your view of the deal? Were you surprised?

OGONEK: I think we understood our own situation very well, but we didn't understand the broader situation. I think if anyone were to look at the market and see that only a third of the IPOs got done in Q4, that would be a surprise.

We didn't expect the market to deteriorate as quickly as it did. When we started to look back and look at the stats, the companies that we were comparing ourselves to were down by 25 to 35 per cent over that period of time. You look at those numbers and you can put some more context to where the market was. It was a challenge and it was a bit nerve wracking.

OBJ: Do you have any regrets about how the deal went through?

OGONEK: No, none at all. We're very excited about what this does for our company going forward. We're already seeing some of the benefits of added market awareness and understanding of Bridgewater. We have a well laid-out path of putting the capital to good use and we're seeing the market growing the way we expect it to.

We absolutely would have liked the capital markets to have been stronger because we could have raised more money at a higher valuation. That would have been a good value to our current investor base. But when we look at the whole equation and balance, our view was that strategic market that we're selling into, that dynamic over-weighed the capital market dynamic ... We were glad that we got a deal done in the end.

The experts say

All of 2007 wasn't a great year. In fact, it was almost one of the worst we have seen and if it had not been for the fourth quarter, it probably would have been. Because of the activity in the fourth quarter, which was more than half of the activity for the whole year, one could speculate that this is a harbinger for more activity through 2008. But one of the big problems that the IPO market faces is the significant volatility that we are seeing in the Canadian market on a day-to-day or week-to-week basis. When you have a market that goes up by five per cent in a week or two, and you're selling your company for say $500 million, five per cent is a large variable.

It wouldn't shock me if 2008 sets the low-water mark (for IPOs). We are in very uncertain times. The years that you have more successful IPOs are the years that you have greater levels of certainty in the marketplace. The Canadian marketplace has been subject to a lot of the U.S. uncertainties and some of our own, such as the income trust taxation changes. It may take longer than 2008 for it to start to come back in its entirety. It's something that's very hard to predict.

Ross Sinclair, national leader, IPO and income trust services, PricewaterhouseCoopers

We have been following Bridgewater's progress, and that is just a great news story for the wireless area and in particular for providing solutions to telecom service providers who manage consumer utilization of applications. This is pretty good news for the city of Ottawa as well, if you look where this area is and where the world is going.

We have launched a study on the convergence of wireline applications to wireless from a business-to-business perspective, not an enterprise perspective, but nonetheless. You and I will be using more and more of these mobile devices whether it is a BlackBerry or an iPhone or you name it, we simply want more of it and more accessibility. What Bridgewater's been providing are the tools to allow our providers to allow that access. They are in that sweet spot in my perspective.

The fact that they were able to complete the IPO shows that there is a huge market opportunity in wireless out there right now. It's roughly akin to the e-business of eight to 10 years ago. This shows a tremendous amount of trust in the company in a time when it's tough to get capital. With $35-million in capital they should be able to certainly consolidate and solidify their position among the top three of the marketplace. If they don't, they're underachieving.

Wayne Gudbranson, president and CEO of the Branham Group