The opening act has been great so far for Rally Software Development, but only after more than a decade of work.
Rally’s (NYSE: [[ticker:RALY]]) IPO this morning was worth $84 million, with its shares pricing at $14. The stock started climbing when trading opened and traded around $18 in the late morning, an increase of nearly 30 percent. That puts Rally’s market capitalization $400 million.
Rally is based in Boulder and develops cloud-based project management tools for software developers. The tools help developers use agile programming methods, a style of development that’s gained prominence in the past decade. Proponents believe it offers greater flexibility and faster results than traditional “waterfall” development.
Rally CEO Tim Miller, founder and chief technology officer Ryan Martens, and other employees were at the New York Stock Exchange this morning and rang the bell to open trading. The ceremony and the start of trading was the culmination of the company’s growth since 2001, when it was founded as F4 Technologies.
“We’ve worked hard to build a big company from the beginning, and we were sure we could build a big company,” Miller said. “It’s kind of neat to see your name up in the big lights in the New York Stock Exchange.”
During an interview, Miller noted the mandated “quiet period” that precedes and follows an IPO limited what he could say, and he joked about the amount of time he worked with lawyers determining what he could and couldn’t say during the IPO process. Today he was free to address some of the highlights of Rally’s IPO.
The Process
Rally’s IPO ended up being better than the company projected. Last week, it set the price range between $11 and $13 per share and said it would offer 5.75 million shares. That would have put the IPO at about $74.8 million at the high end.
“It’s a bit more art than science, but we had robust demand for the stock,” Miller said. The underwriters determined the shares were worth more, so the price went up, he said. Deutsche Bank Securities and Piper Jaffray & Co. acted as lead book-running managers for the offering, while Needham & Company, JMP Securities, and William Blair & Company were co-managers.
For the past few years, it was an open secret in Boulder that Rally’s leadership and investors felt the company was ready for an IPO and were trying to find the ideal time to go public. The company had raised about $70 million in venture capital. Investors in Rally include Boulder Ventures, Mobius Venture Capital, Greylock Partners, and Meritech Capital Partners.
“We’ve been putting plans in place for years to do everything we needed to do,” Miller said. “We were not in a rush to do it. There was no pressure for us. We were very thoughtful about preparing.”
Rally was able to go public at a time when the market was stronger and more settled than it has been for much of the past five years. Investors seem to have an appetite now for stock in mid-sized companies like Rally that are having similar-sized IPOs but offer the opportunity for a lot of growth, Miller said.
The company has been showing strong revenue growth, according to financial data included in the filing. From fiscal 2012 to fiscal 2013, Rally’s total revenue grew to $56.8 million, up 38 percent from $41.3 million. Revenue was $29.7 million during the company’s 2011 fiscal year.
But Rally has not been profitable. The firm reported a $10.8 million net loss in 2013, down from the $11.6 million net loss the year before.
The wait also allowed the company to take advantage of new rules created in the wake of the 2012 JOBS Act that benefit what it terms “emerging growth companies.” Rally met the criteria, which enabled it to file its draft registration submissions with the SEC on a confidential basis.
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