Sam Morgan to invest another $1m in SLI

Trade Me founder Sam Morgan will double his investment in website software developer SLI Systems in the company's upcoming IPO.

The Christchurch-based company plans to raise $27 million in an initial public offer at $1.50 apiece as it prepares to list on May 31, and has lodged its prospectus with the Companies Office.

Of the $27 million, $15 million will be used to grow the company while $12 million will be paid to SLI's existing shareholders.

SLI (Search Learn Improve) Systems makes website search software. Its clients include Warehouse Group and Qantas. Its pitch is that its makes it easier than alternatives - like a licensed version of Google search - for customers to find deals.

NBR Rich Lister Mr Morgan's first $1 million investment in SLI was revealed in January.

SLI's prospectus, released today, says: "Interests associated with existing SLI shareholder Sam Morgan have agreed to subscribe for $1 million of the new capital under offer."

At $1.50 a share, that gives Mr Morgan 3.7% of the 18 million shares being offered.

Meanwhile, local retail investors will not get a chance to buy into the NZX float of SLI after the share offer was overbid by almost 2.5 times in the bookbuild by institutions.

Chief financial officer Rod Garrett told a media briefing the bookbuild was completed last week and was well subscribed, with nine institutional investors set to join the share register. Existing shareholders will not be able to sell their shares until SLI reports its preliminary 2014 annual results.

The level of investor interest is similar to what boutique brewery Moa Group achieved in November last year when it raised just $1 million from the public and $15 million from institutions. SLI's float is competing with the government's sell-down of Mighty River Power and the backdoor listing of the Mad Butcher franchise.

Like listed tech-darling Xero, SLI plans to forgo profits in the short to medium term in an international sales drive towards long-term growth.

Profit a board decision
The company forecasts a loss before interest, tax, depreciation and amortisation of $1.9 million in the 2013 financial year on sales of $18.3 million, widening to an EBITDA loss of $6.9 million the following year on revenue of $22.2 million.

Mr Garrett says SLI could turn a profit after the forecast period in the prospectus, but that will be a decision for the board to make on whether it should continue its push for sales growth.

The new funds will be used to nearly double its direct sales and marketing team and pay for its expansion plans into Japan and Brazil where it sees opportunities. About $7.3 million of the cash raised will be held for working capital and about $2.1 million is expected to cover the net cost of the listing.

Chief executive Shaun Ryan says Japan has a mature e-commerce market and is a better fit for SLI's products, which is why it trumped other Asian economies for the company's immediate expansion plans.

SLI Systems has been set up to acquire SLI Systems Inc, the US business originally started in Christchurch in 2001 and later bought back from its US owner.

The company cited a change in the algorithms used by major search engines such as Google as a potential risk, with referrals from Site Champion generating 20 percent of SLI's revenue.

Other risks include intellectual property infringement and protection, and its threat to open source code which SLI uses in some of its products.

The offer opens on May 14, closing on May 28 with a listing scheduled for May 31.

– additional reporting by BusinessDesk