The Big Deal: Causing a public Ruckus

Benjamin Franklin famously once said that nothing in life is certain except “death and taxes”. Had the American polymath been alive today, however, he might have added “faster internet” to the list.

One company that looks to capitalise on the world’s ever-growing demand for better internet infrastructure is Ruckus Wireless; this week’s Big Deal reflecting the importance of turning your corporate venturing shareholders into large customers to create the revenue momentum to allow a listing.

Ruckus, a US-based wireless connectivity company backed by a host of telecom operators and equipment suppliers, has filed its initial public offering with the SEC last month, on course for the chief executive officer’s original forecast of a 2013 flotation.

The firm, which plans to trade on the NYSE under the ticker “RKUS”, is looking to raise $100m in the initial public offering (IPO). Ruckus is offering up 8.4m shares, 7m from the company with the remainder offered up by current holders, which it plans to price somewhere in the $13 to $15 per share range.  

The company has been making steady gains heading into its IPO. During the fourth quarter (Q4) of 2011, Ruckus made 34% of its revenues for the year. The revenue growth in Q4 last year was also the highest of all wireless local area network (WLAN) suppliers at 134% over the year. That pace seems to be holding steady for 2012 as the revenues for first three quarters of the year are 93% higher than the same period in 2011. Thusly, Ruckus is likely to enjoy revenues north of the $230m mark, and a valuation around four times that.

The Californian firm has received solid venture backing in the past, and received a total of around $75m in funding. Corporates backing Ruckus include Japan-based financial services company Mitsui Group, Germany-based phone operator Deutsche Telekom, and telecom equipment supplier Motorola Mobility (now owned by search engine Google). Of the three, only Motorola looks to hold onto all of its shares (6% pre-IPO) in the IPO. Venture capital firm Sequoia Capital also holds a large share in the company, with a pre-IPO stake of 26.8%.

On first examination, Ruckus’ revenues may not be quite as high as one would expect for a company looking to go public. However, the company has been cash-flow positive for six quarters, is debt-free, commands around 5% of the WLAN market worldwide, and is in a good place to capitalise on the new, emerging market of carrier WiFi.

Ruckus is looking to carve out its own chunk of the wireless connectivity market, recently projected to be worth $43bn in a recent report. The focus on carrier WiFi separates the firm from rivals such as Meru and Aruba Networks, the business models of which still revolve around the WLAN market.

Ruckus, who took an active role providing WiFi to support the London Olympic Games this year, provides WiFi and WLAN products both to directly to broadband providers and to companies. Ruckus’ clients include Verizon, AT&T, Time Warner Cable, China Telecom, and, unsurprisingly, Deutsche Telekom.

The German communications company signed a deal with Ruckus in 2007 which saw Ruckus supply WiFi functionality for Deutsche Telekom’s in-home IPTV entertainment service in Germany. Ruckus claims that nearly 60% of its revenues comes from telecommunications carriers such as Deutsche Telekom, demonstrating the strong business model of turning your financial backers into paying customers.

Investment banks supporting the deal are Goldman Sachs, Morgan Stanley, Deutsche Bank, Needham, Oppenheimer, William Blair and Craig-Halum Capital Group.