Riverdeep IPO soars on Nasdaq

By Harry Keaney

Talk about timing the party.

Riverdeep, an Irish educational software company, could well have renamed itself Sky high last Thursday when its initial public offering got under way on the NASDAQ, the same day that the market that’s home to many high-tech stocks soared above 5,000 for the first time.

Riverdeep founder Pat McDonagh and CEO Barry O’Callaghan may wish to remember the date of their company’s IPO as Triple Thursday; Riverdeep’s more than six million American depository shares rocketed from their $20 offering price to a close of almost $67 at the end of trading Thursday.

The total offering was 25 percent of the company’s share capital.

Riverdeep’s shares trade on the Nasdaq national market under RVDP.

Credit Suisse First Boston, Donaldson Lufkin & Jenrette, Davy Stockbrokers and Wit Soundview were underwriters for the IPO.

The company also launched on the Irish stock exchange, making it the first Irish-founded technology company to simultaneously list on both markets.

In Dublin, the shares opened at 3.48 euros and soared 164 percent to close at 9.20 euros.

Among the major beneficiaries of the offering were Riverdeep’s 150 staff, about half of whom are in Ireland, as well as McDonagh himself, whose stock was worth $930 million. Shares held by the company’s 30-year-old chief executive, Barry O’Callaghan, were worth $193 million.

Following Thursday’s launch, the company was valued in excess of $1.9 billion, although it only had revenues of $2 million for the year ending June 1999.

In the last six months of 1999, Riverdeep had revenues of $4.5 million and a net loss of $20.8 million.

However, Riverdeep is not unusual in incurring such losses. A feature of many internet-based companies is that although they incur significant losses, their share prices nevertheless soar. This is also a feature currently distinguishing internet companies from older businesses in which share price bears a relationship to many fundamentals, among them profits. That’s the difference between what Wall Street has begun calling the clicks and the bricks.

Riverdeep, however, hopes to tap into the educational market for internet-based solutions for the kindergarten to 12-year-old group in the U.S. This market was worth more than $350 billion during the 1997-98 school year. Spending on instructional technology and the availability of internet access within schools are expected to grow significantly. Whether Riverdeep, and many other internet companies, are overvalued remains to be seen.

What? who? where?

The company was established in late 1995 by McDonagh, a primary school teacher by training, to develop educational materials based on technology-based delivery for the schools market.

McDonagh is perhaps best known for his founding of the CBT Group, now called Smartforce.com, a provider of computer-based training products for the corporate market which floated on the Nasdaq national market in 1995.

According to news reports in Ireland, McDonagh is well on his way to fulfilling an ambition to farm 1,000 acres of land in north County Dublin. McDonagh has reportedly been buying land in Meath and north Dublin for several years. In may 1996, he bought Skidoo Stud in Ballyboughal for £1.85 million. He also bought two farms in nearby Rolestown, making up 300 acres. He recently acquired Corbalton hall, near Tara, Co. Meath. The property contains an extensive house on 300 acres. The house was designed by Francis Johnston, who worked on Áras an Uachtaráin and Slane Castle.

McDonagh reportedly has more than 300 head of cattle on one farm alone.

Before taking up his position as chief executive of Riverdeep, O’Callaghan, a native of Mitchelstown, Co. Cork, worked in merchant banking for Credit Suisse First Boston in London where he was involved in assessing technology companies as potential investments. Previously he worked for Morgan Stanley in Hong Kong and London.

In April 1999, he left his job with Credit Suisse First Boston to return to Dublin to work for Riverdeep.

Last year, Riverdeep acquired the educational assets of another company, Logal, and has since made its curriculum instructional coursewear accessible on the web for delivery online to schools through its portal, Riverdeep.net.

Riverdeep has locations in Dublin and Cambridge, Mass.