Software and Tech Companies and Manufacturing & Technology

Massachusetts-based software maker plots initial public offering

September 11, 2006

A disaster-recovery-software maker with major operations in Indianapolis is planning an initial public offering that could accelerate the company's growth.

Southborough, Mass.-based Double-Take Software Inc. filed plans with the Securities and Exchange Commission to raise $86 million in the offering and to list its shares on NASDAQ.

Known as NSI Software Inc. until a name change in July, Double-Take has 286 employees, 133 of them here. It's the second-biggest employer of software developers in the Indianapolis area, according to IBJ research.

A Double-Take spokesman declined to comment. SEC rules limit public statements in advance of an IPO.

Founded in 1991, the company makes software to protect and recover business data in the event of a disaster. It boasts more than 10,000 customers, including the Boston Celtics, E.W. Scripps Co. and the U.S. Department of Defense. The median price of its software is $4,000.

In recent years, Double-Take's sales have increased dramatically. Last year, they reached $40.7 million, up 37 percent from 2004.

The SEC filing says the company hopes to sustain that trend by increasing sales to current customers, expanding globally, and continuing to improve its software. In May, it acquired a former distributor, giving it a foothold in Europe, the Middle East and Africa.

But profit has been elusive. In the first quarter of this year, it made money for the first time, earning $373,000 on revenue of $10.7 million. According to SEC documents, Double-Take has accumulated $97.6 million in debt since inception.

So much red ink coupled with such a short profit history may make potential investors skittish, an analyst said.

"Right now, this sector is not very tolerant of companies that are coming to market with accumulated losses," said David Menlow, president of IPO Financial Network, a Millburn, N.J.-based research firm.

Double-Take hopes to benefit, in part, from the growing market for disaster-recovery software. In its SEC filing, it highlighted research from Framingham, Mass.-based International Data Corp., which indicates the worldwide market for storage-replication software will double from $2.1 billion in 2005 to $4.2 billion in 2010.

International Data Software Group Research Manager Rhoda Phillips described Double-Take as a growing firm in a competitive but expanding field.

"The company is doing well," she said. "In the storage software market, they're a strong player."

Dave Russell, an analyst for Stamford, Conn.-based technology research firm Gartner Inc., agreed that demand for disaster-recovery software has waxed in recent years, particularly following watershed events like 9/11 and Hurricane Katrina.

He said IT departments have long understood the need to ensure business continuity. Now executives appreciate it, too.

"They don't have to evangelize the need for this technology or product," Russell said. "From the CEO down to the night watchman, there's an innate feeling that protecting data is important."

Despite the demand for data protection, Russell said the timing of Double-Take's IPO registration is curious. The disaster-recovery software market is fairly crowded with vendors, he said, and is dominated by big players like Microsoft.

He speculated that Double-Take may have filed to go public to draw the attention of potential acquirers. Or Double-Take's investors may be eager to cash out.

"Most reactions [to the IPO filing] have been mixed," Russell said. "This could be a difficult time to go public."

Double-Take's SEC filing says Baltimore-based ABS Capital Partners, a venture capital firm with $1.5 billion under management, holds a majority of Double-Take's stock.

Double-Take CEO Dean Goodermote, a former ABS partner, took charge of the company in March 2005. He replaced Double-Take's former CEO, Donald Beeler, who resigned that month. His brother Robert Beeler is still listed as Double-Take's vice president of engineering.

ABS didn't respond to IBJ's request for an interview.

Double-Take so far has disclosed few details of its IPO plans. It hasn't said, for instance, what percentage of the company will be sold in the offering, or at what price. In addition, it hasn't yet said whether it made money in the second quarter.

"Double-Take's going to need to show stronger financials for it to be considered a hot deal," Menlow said. "But I'm sure it will get a second look once more information is disclosed."

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