In looking at Open Link Financial’s (OLF’s) pending IPO, it’s interesting, if not necessarily informative, to look back at the last company that did an IPO in the ETRM space and see what ultimately became of that company - Caminus.

For those that don’t remember Caminus, the company started out as a “strategic consulting” firm based in Cambridge, England. Through a series of transactions, the company was restructured as a vehicle to acquire companies with the goal of going public during the tech boom of the late 90’s. Prior to their IPO they acquired Positron and Zai*Net, providing the company with products and the promise of growing revenues. At the time of Caminus filling their S-1, they had basically been around about 18 months and had yet to show a profit.

In comparing the two companies, Caminus and OpenLink - one has to remember that market sentiment at the time of Caminus’ S-1 filing was entirely different than today. It was the time of the “new economy” where companies weren’t measured on profitability, but on revenue growth - real and promised. It was expected that a technology company was burning cash in order to position themselves to take advantage of the explosive growth that was certain to come for any tech company. It was all about that promise, not performance. The Nasdaq was rocketing forward, having tripled in value from 1995 to 1999. The sky was the limit and tech geeks that had nothing more than a web address and an idea were becoming millionaires. However by mid-year of 2000, it all started to going into the ditch - the “new economists” were discredited and the “old economy” once again proved to be the only valid game in town.

At the time of Caminus’ IPO in January of 2000, the offering sold out at $16/share, raising almost $70,000,000 for the company. Two years later, almost to the day, SunGard offered $9/share, a 360% premium for shares that were trading the day before at $2.50, up from an all-time low of $1.53. From the time of their initial offering to the ultimate end of the company, Caminus had added Nucleus and Altra to their stable of products - and in the process spent almost $80 million on the two acquisitions. Though they had been able to grow their revenues to more than $83 million, Caminus was never able to show a profit. In fact, in their last full year of operation, 2002, the company had an operating loss of more than $18 million.

Ultimately, Caminus was felled by a number of forces; the Enron implosion and knock-on impacts across the energy markets, the tech bust, and a business model built around the idea of buying market share through acquisition of products that could never be technically reconciled, a model that forced the company to resell and reimplement every customer that was not on Caminus’ “go forward” product.

With that backdrop, here’s the numbers, keeping in mind that Caminus’ numbers were derrived from their S-1 filed in June of 1999 and have been adjusted (by me) to reflect a pro forma full year…

Again, while this comparison is interesting, it’s probably not that relevent. Market conditions at the time of the Caminus IPO were entirely different that today’s. The IPO markets in 1999 rewarded growth at any cost - today’s markets value sustained growth and consistent profitability. Open Link’s business model of growing organically and by complementary, not competing, acquisitions (such as IRM) provides the company with a foundation of sustainable growth, allowing them to focus on increasing their market appeal (and therefore market share) without having to resale a base of acquired customers.

Still, for investors considering getting in on this IPO, it is certainly not without risk. For all the huge numbers being thrown as to the size of the energy market, the market for OpenLink’s products is relatively small. According to their S-1 and ignoring customers acquired in the IRM acquisition, OLF added 11 new customers in 2006 and 17 in 2007. Clearly, each customer added represents a significant percentage of revenue. Making a few assumptions and doing a bit of math, OLF’s average new customer for their core products, Endur, Findur and the Motion modules, brings in between $2 and $2.5 million in license revenue, with associated implementation services adding the same or potentially much more in services revenues. In a market relying on a small number of customers (and as competitive as the ETRM space is), any stumble during the sales process or a failure in software delivery will have a disporportional revenue and profit impact as compared to businesses operating in other industries or markets. That’s not to say that OLF and other ETRM vendors don’t recognize that exposure. In fact, several of the top venders in the space, including OpenLink, are working to quickly expand their capabilities to service non-energy markets, recasting themselves as CTRM (Commodity Trading and Risk Management), not just ETRM.

As time permits, we’ll examine some of the other details around OLF’s pending IPO, including that interesting Revenue per Employee number shown above.

Incidently, UtiliPoint is currently preparing our 2008 North American ETRM Market Analysis and Sizing Report. It should be available for purchase by the end of June and should be of interest to anyone contemplating an investment in this space.