VerticalScope upsizes IPO to $125 million, begins trading on TSX

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After increasing the size of its initial public offering (IPO) by $25 million CAD, Toronto-based VerticalScope began trading on the Toronto Stock Exchange (TSX) on Tuesday under the symbol ‘FORA.’

Through the IPO, which is expected to close on June 21, VerticalScope planned to issue nearly 5.7 million subordinate voting shares at a price of $22 per share. The company’s shares opened at a price of $25.25, but have since dipped to around $23 per share at time of publication.

VerticalScope aims to raise just over $125 million CAD to support its acquisition efforts.

VerticalScope aims to raise just over $125 million CAD to support its acquisition efforts. UPDATE (06/21/21): VerticalScope’s IPO has now closed at the terms outlined above, and the company has secured more than $125 million in total gross proceeds.
 

The deal also grants the underwriters an over-allotment option to purchase around 850,000 additional subordinate voting shares at the offering price, which, if exercised in full, could bring the IPO’s total gross proceeds to nearly $144 million CAD.

In an interview, VerticalScope’s founder and CEO Rob Laidlaw described the response the company has received from investors as “incredibly strong,” attributing it to excitement about VerticalScope’s merger and acquisition (M&A) and software platform-based approach.

“We have a successful history of acquiring and integrating communities to expand our footprint,” wrote the company in its prospectus. “We believe there is a massive opportunity to continue consolidating independent communities and creating value by improving user experience, engagement and monetization.”

Founded in 1999, VerticalScope is a software company that operates a platform for online enthusiast communities in high-consumer spending categories like automotive, powersports, outdoor, home, health, and technology.

Through organic growth and acquisitions like VarageSale, VerticalScope has built a portfolio of over 1,200 online communities and more than 100 million active monthly users.

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VerticalScope makes money from these sites in two ways: advertising and commerce referrals, as partners pay a fee to VerticalScope when users purchase products from partners after discussing them on VerticalScope sites. Between its digital advertising and e-commerce offerings, VerticalScope recorded $58.5 million USD in revenue last year.

According to its prospectus, in 2018, VerticalScope generated $68.3 million USD in revenue, followed by a two year-long dip to $58.5 million in 2019 and 2020. Laidlaw called this decline “intentional,” adding that it happened as VerticalScope began to move its sites over to its new Fora software platform in May 2019.

“At that time our communities were a bit over-monetized,” said Laidlaw. “There’s too many ads, it was distracting to the user. So we took a step back on monetization, and prioritized user experience over revenue.”

Today, Laidlaw said VerticalScope has transitioned around 90 percent of its communities to Fora. The CEO said this move has “really worked” to the company’s favour, highlighting that over the last 12 months, VerticalScope grew its revenue by about 11 percent.

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Prior to Fora, VerticalScope served its communities on legacy, third-party software, which Laidlaw said made it difficult to implement changes at scale. “The shift [to Fora] made our business easier to manage,” said the CEO. “But it’s also made the communities a lot better and a lot stronger with a modern platform [and] faster sites in the cloud. It’s very scalable, reliable, and secure.”

Now, the company has returned its focus to M&A growth. “Our playbook is we’re going to go and execute on M&A,” said Laidlaw.

Laidlaw said VerticalScope has executed over 200 acquisitions to date. The company’s current acquisition pipeline includes 20 more opportunities, which VerticalScope estimates could represent over $18 million of adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) collectively. The firm plans to pursue these deals over the next year.

The company has reported that its long-term plans include the potential to acquire 50 more online communities, which VerticalScope estimates could represent over $50 million of adjusted EBITDA.

Torstar Corporation, the media company behind the Toronto Star, has been a majority shareholder in VerticalScope since 2015, when it purchased 56 percent interest in the company. VerticalScope’s principal shareholders include Laidlaw’s RDL Ventures, Hedgewood, and NordStar Capital LP, which bought Torstar last year.

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Laidlaw said VerticalScope is interested in product or topic-focused sites, citing the company’s mountain biking and snowboarding forums as examples. “People really come to these types of sites to find information and research product purchase decisions, and then you just get drawn in. There’s so much knowledge and information in these communities.”

According to the company’s prospectus, RDL Ventures, an entity controlled by Laidlaw, will directly or indirectly own or control 100 percent of the multiple voting shares of the company, upon completion of the IPO.

The Globe and Mail was first to report VerticalScope’s plans for going public. Initially, VerticalScope sought to raise only $100 million through the IPO, but, on Monday, the firm boosted the size of its offering to $125 million.

The IPO’s underwriters include RBC Dominion Securities, Canaccord Genuity Corp, National Bank Financial, TD Securities, Raymond James, Desjardins Securities, Cormark Securities and HSBC Securities.

UPDATE (06/15/21): This story was updated to include commentary from Rob Laidlaw.

Feature image from Wikimedia Commons

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