Despite downsizing its offering and experiencing an underwhelming Toronto Stock Exchange (TSX) debut, Q4 Inc. is not deterred, and the company’s CEO foresees sizeable growth opportunities.
Toronto-based investor relations (IR) software firm Q4 finally made its TSX debut October 25 following a process that began in May and was put on hold due to a contract renegotiation before it was resumed earlier this month. It’s a saga that saw the company reduce its initial public offering (IPO) target after seeing lower than expected demand from investors, and experience a disappointing day one performance.
Heaps cited the strength of Q4’s investor base and growth opportunities in areas like M&A and the investor conference space.
In an interview with BetaKit, Q4 founder and CEO Darrell Heaps spoke about how Q4 grew from a web content management system to a global data and experience platform, the company’s long and eventful IPO process, and why he isn’t concerned about the size of Q4’s IPO or the company’s opening day share price.
Founded by Heaps, Q4 provides capital market solutions to the IR industry designed to help public companies better understand their performance and engage with their investors. The company’s software platform boasts approximately 2,400 clients, including Netflix, Visa, McDonald’s, Walmart, Square, Shopify, and Nike, and more than 12 million investor users per month.
Heaps emphasized that Q4 feels positive about the outcome of its $100 million CAD IPO. He cited the strength of the company’s investor base and its growth opportunities in areas like mergers and acquisitions (M&A) and the investor conference space, adding that he sees additional raises and stock exchange listings in the company’s future.
In 2005, Heaps said his motivation was to create a business connected to consistent demand. The serial entrepreneur, who grew up around capital markets, had always been fascinated by the stock market and the relationship between public companies and investors.
As a result, he decided to launch Q4, a B2B subscription business, to help facilitate that connection. Q4 began as a web content management system for public companies.
Heaps said the company’s thesis was first tested during the financial crisis of 2008. At that point, Q4 had 40 to 50 public company clients, and, to its surprise, the startup didn’t lose any.
“It was at that point that we really pivoted the company to being focused on both building the entire stack for everything needed in investor relations, but even more so, the vision of connecting the three sides of the capital markets through our platform,” said Heaps, who added that Q4’s growth “really started” after 2010.
For Q4, going public was always the plan. “It has always been a strategic objective of ours to go public, because we always felt that the more that we could be a participant in the same market that we’re serving, that would give us an opportunity to continuously eat our own cooking,” said Heaps.
Q4 saw significant growth during COVID-19 fuelled by tailwinds associated with the pandemic-driven shift to virtual, the health of North America’s public markets, and its January 2020 acquisition of S&P Global Market Intelligence’s IR web hosting business.
In May, Q4 decided the timing was right to go public, filing to join the TSX, aiming to raise $150 million by pricing its shares between $10.50 and $13 apiece.
However, after a Q4 partner company reached out to renegotiate a contract, the company postponed these plans to avoid distracting from its offering. “We really wanted to make sure that we were fully confident in all aspects of the business,” said Heaps. “That kind of discussion being ongoing during the [IPO] process just doesn’t make sense.”
According to Heaps, this move was a blessing in disguise, because it opened up “some really great opportunities” for Q4 related to its virtual events platform, and accelerated its movement into selling virtual investor conferences to investment banks.
Heaps said Q4 could’ve resumed looking to go public in the summer, but wanted to add another quarter to its prospectus and make some more inroads on the virtual event and conference fronts.
When Q4 re-filed for a TSX IPO earlier this month, it hoped to raise $150 million, at an increased target price range of $14 to $17.50 per share. But despite Heaps’ claim that pausing its IPO led to opportunities for the firm, the company ended up seeing lower than anticipated demand from investors, and downsized its IPO to $100 million and $12 per share last week.
Q4 began trading on TSX on Monday to disappointing early results, opening below its $12 issue price at $11.60 per share, and closed the day at $11.52, four percent below its initial target.
During its second day of trading, however, Q4’s stock price improved, closing at $11.90, only slightly below its $12 goal. As of publication, Q4 is trading at $11.75.
“We take a long-term view on the pricing of the stock,” Heaps told BetaKit. “We are more focused on where we will be trading six months from now, than on our first day of trading. Having said that, we’re happy with our first day in the markets and look forward to executing on our organic growth and M&A strategies and continuing to drive value for all of our shareholders.”
Heaps also downplayed reducing the IPO target, claiming that Q4’s main objective all along was to raise over $100 million, because this would give it the capital it needs to drive its business forward.
The CEO said Q4 decided to reduce its target in part to ensure the quality of its shareholder base and attract fundamental investors rather than “fast-money hedge funds,” which to Q4 was more important than the IPO size or price.
“Making sure that we were very cognizant in terms of who those investors were and structuring the deal, to attract the right quality shareholders, was a much higher priority on our list than whatever the price of the IPO was going to be,” said Heaps.
As a result, Heaps claimed over three quarters of Q4’s shareholder base, which the company cannot yet disclose, is “the cream of the crop in terms of fundamental long-term investors.”
UPDATE (29/10/21): Q4 officially closed its IPO, raising over $100 million CAD in gross proceeds after selling approximately 8.3 million common shares at $12 apiece. The deal also includes an over-allotment option that could see it reach up to $114 million.
Q4 plans to use its IPO funding to repay debts related to its credit facilities and pursue its growth strategies, which include broadening its customer base through investments in sales and marketing, channel partnerships, and product development, as it looks to expand its range of offerings. Q4 also expects M&A to be a key driver of its growth moving forward.
The company has executed five acquisitions to date, consisting of a combination of consolidation deals through which it has acquired competitors, and strategic acquisitions. Going forward, Heaps said Q4 sees a large number of potential target businesses that could be a strong fit for Q4 from a data and tech perspective.
Q4 also sees “a lot of opportunity” to grow in the investor conference space, where demand has increased due to COVID-19. Heaps described investor conferences as “another key component to [Q4’s] overall offering, and a key essential step in our expansion of serving not just the corporate business but also serving the investment banks and investors,” in both all-virtual and hybrid formats.
Feature image of Q4 founder and CEO Darrell Heaps from LinkedIn