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Sonar6 sold for $US14m

Auckland HR software company Sonar6 has been sold to US company Cornerstone Ondemand for $US13 million plus $US1 million in shares.

Sonar6 chief executive Mike Carden told NBR the company and its 32 employees would remain in Auckland Mr Cardin said. The CEO would say on "indefinitely."

Sonar6 makes cloud (internet) based human resource software used by 375 companies, Mr Cardin said.

New Zealand customers included KiwiBank. Most clients were in North America, including internet radio company Pandora, and yoghurt chain Pinkberry.

Mr Carden would not comment on whether Sonar6 turned a profit, qualifying that it was in an "aggressive growth phase."

It had no debt, the CEO said.

Ahead of the deal, the largest share of Sonar6 was held by Fairfax director and TradeMe founder Sam Morgan, with a 19.43% stake, worth $US2.72 million if reports of the sale price are accurate.

The second largest parcel of shares - 17.14% (or around $US2.40 million worth) - was allocated to three people including Mr Carden.

Smaller shareholders include NBR Rich Lister John Holdsworth (majority owner of Datacom) and Barry Hastings, Mr Carden's former boss at HP New Zealand.

Nasdaq-listed Cornerstone [NAS:COSD] has a market value of just over $US1 billion.

The deal is expected to close within 45 days. Cornerstone said the acquisition will not have material impact on its 2012 earnings.

Asked about the deal's impact on his personal wealth, one-time scrabbling student Mr Carden said "I'm still working." 

Although, on this particular Friday afternoon, he was sailing.

The Sonar6 sale is the latest in a string of NZ high tech companies sold to offshore interests, including NextWindow, Right Hemisphere and The Hyperfactory.

In June last year, Sonar6 received a $250,000 government grant.

More by Chris Keall

Comments and questions
22

Not trying to take away from Sam Morgans involvement but you are definately taking away from Mike involvement by calling it Sam Morgans company.

Good on them.

@Chris - You need to set up a NZ version of Crunchbase so we can figure out how good these deals are for the angel investors.

[Sure. Can you spot me a couple of mill? - CK]

The company office data would indicate that the sales price was around $18-19 per share. the major investment in 2007 and 2009 was at $10 a share. So around 80 - 90% return. I think that equates to around 20 - 30% pa which is a pretty good return for a VC investment.

As you say would be nice to see data on other transations - Right Hemisphere and others which are back by NZVIFand therefore us taxpayers. Shame they were not in this one might have helped their poor numbers. On that why can others invest in successful companies and exit yet our government back funds and angel groups struggle?

It looks like none of the successful companies (Sonar6, Next Window etc) have had any support from NZ VCs or VIF.

The corollary is that the VCs have had few if any successes, yet hundreds of millions have been put into NZ VIF and therefore into VC investments.

Begs the question as to why this is - and why the government keeps pouring money into what seems to be a losing formula.

The VIF-backed VCs do very nicely out of their management fees and their performance is never questioned. All very cosy.

Agree with your observations, success from the NZVIF programme is alomost invisible. Yet as you say they continue to get airtime and government funding / support. After 10 years it is time for a serious review.

The media should also be asking hard questions. As Sonar 6 shows you can build and exit a business in less than 10 years successfully in NZ. Surely out of the 100+ investments made by NZVIF so far they should have done something positive in the timeframe.

And we can safely assume that Sam, to demonstrate his concerns about a lack of capital gains taxes, will post off 30% of his profit to the IRD?

There will be a lot of talk and no action.

We might read in the near future that Sam has invested the proceeds into Xero and hear Drury hurting our ears saying it's a testament to the companies strength even though it is not known when a profit will be made.

Well done a great result but once again NZ Inc establishes a great comapny and because of lack of capital here in NZ we sell out early and a large corporation gets all the upside and eventually will close down the NZ base - as it is simply too far away to manage or when the parent company eventually suffers a downturn in their own market the first cost saving is to close all outposts and save the jobs of the locals.

It's about bloody time the Government re established a DFC or a similar type development bank. We will never create a Nokia here in NZ the way we operate or shoudl I say under the constraints that we operate

With the amount of funds Morgan must have to put into this, it can't be lack of capital that caused the sale? And by the sounds of it they've not even looked to go public, so seeking more capital to run the venture themselves doesn't seem to have been a priority. The sale was. Hence my post above.

By now Sam and his mates have enough money and experience to grow super big if they wanted to.

The notion that they sold out early due to lack of funds does not play. They sold out because the return was good enough and he can look good saying "I should pay more tax", but we know he doesn't.

These guys should just stick with something and grow it.

It is getting to be an interesting tax proposition vis a vis Morgan. This is now the second time he's been involved in a company start up that is, in the scheme of things, quickly sold. If this 'pattern' demonstrates the initiating intention is start-up for purpose of grooming for sale, taking a profit then moving onto the next start up, rather than the intention to operate a business for the long term, then his business is arguably the 'sale' of businesses/goodwill, thus taxable?

Still, I don't know. Perhaps he is paying tax on his gain.

Good on his initiative: but there is a principle here: if he believes in a capital gains tax, well .... Personally, I think he is obviously able to use his capital for far greater economic good than if he gave it to government to grow the welfare/slave state, so his principle is rubbish. But you should preach something, then do something else, no matter how stupid the corner you've painted yourself into.

Unless, of course, an honourable recant is called for.

... which forum had an edit function.

First post typo: '.. you shouldn't preach something, then do something else ...'

I thought Sam said he was getting out because the company was getting to big , personal wise , and he wasn't the only share holder so it must have been some money motivation there. Good on him I say two successful company's , wish I could pick his brains.

Hmmmmm...yet another company sold offshore for quick profits. When we stop exporting these high growth companies. I agree with above once it all gets too hard for the new owner based on distance and another downturn - bang there goes the office as it moves closer to home. Whats in it for NZ - not alot if anything, what's in it for Sam and co - money money money. There is $$ here for investing - where was the offer? What a silly little country we are.

If you people have made a dollar or two congratulations well done and good luck for your next venture1!!

If you people have made a dollar or two congratulations well done and good luck for your next venture1!!

Question for you Mr Keall: Seeing as you mentioned it and kindly included the link - will you be following up on the taxpayer "grant" to this company only last year?
Some suggested questions:
- Was the "grant" repayable (ie. a loan), or was it really just a gift?
- What conditions were attached to it, and were those conditions fulfilled?
- If not, does the Ministry plan to impose any conditions on future grants (like requiring repayment if the company is sold within a certain period)?
- Or is the NZ taxpayer in the business of helping companies to grow and get in shape for purchase by overseas interests?
- And just how is that supposed to assist the economy?

Excellent points. Also can someone explain the difference between selling this type of business to an overseas buyer and selling the Westpac(Crafar) farms to the Chinese? The silent opposition is deafening.

why is the tax the big issue here? Looking at the bright side we have some beautiful minds in New Zealand we have to face it the big players sits overseas.

Maybe Sam's faith in Cloud Based software companies isn't as rock solid as Rod's is.

Lets be clear.

$14m is not a killing. So there must have been other reasons for selling.

Why are folks so focused on Drury's Xero making a profit? It needs to grow like hell to get a 1 million customers. Then sell it to Intuit or Microsoft. 1 million customers at $30pm each is $360 million revenue - or $3 billion on todays valuation criteria. That works for me.

USD14m is about NZ$17.5m so this is deal is at the lower end of tech co sales.

The CEO has made about $3.5m - a tidy sum but by no means a fortune. Not exactly hitting the jackpot after years of hard slog and hundreds of long haul flights.

You do have to wonder why they sold.

Maybe the growth potential was limited and they felt the company wasn't going to be worth $50m any time soon. I don't think access to capital was going to be an issue with people like Sam Morgan and John Holdsworth involved. It might just be that without a strong owner with established channels they weren't going to be able to grow fast enough.

I think Xero has the same problem even though in many ways they're doing a very good job. They have plenty of cash (and always have had) but in my view they simply are not growing user numbers fast enough and are a long way from being a significant player in any major market.

Sonar6 was NOT Sam Morgan's company. It was conceived, started, developed and sold by Mike Carden (note the name spelling!!)
Come on NBR get your fact right!!