Going private: SciQuest’s turnaround, part 2

April 26th, 2007

By Allan Maurer

RESEARCH TRIANGLE, NC—As a public company, SciQuest saw its share price plummet from $84 in the dot com boom days to 69 cents after the dot com bust. In 2004, private investors acquired the company for $25.25 million and removed it voluntarily from the NASDAQ exchange. In 2006, as a private company, SciQuest posted its first profits.

SciQuest evolved from a business plan sketched out on a Subway shop napkin by founders Scott Andrews and Bobby Feigler in 1995. It hired Peyton Anderson as president and raised $800,000 from private investors and a Small Business Administration loan before going public in November 1999.

Its stock initially sold for $16, rose to $30 the first day, and to $84 by the end of December. By March 2000, however, the stock price fell to $33. By April 2001, it hit a low of 69 cents.

SciQuest CEO Steve Wiehe, brought in to save the company or close its doors in February 2001, initiated a series of layoffs by that summer, slashing the company’s employment roles by 100s, but more importantly, focused on an area of its business that could make money.

Going private
Being a public company, however, continued to drain its resources, eating up about 20 percent of its cash each year to meet Securities and Exchange Commission reporting requirements and tough Sarbanes-Oxley regulations. As a public company, Wiehe says, “We had a mismatch between the shareholders and the business.”

The answer? Take the company private.

California’s Trinity Ventures, and NC’s Intersouth Partners and River Cities invested the funds to take it out of the public arena in 2004. As a private company, SciQuest posted its first profits in September last year and continues to grow.

“Last year we did about a billion in transaction dollars, and this year over a billion in the first three months alone,” says Wiehe. “And that’s at a 65 percent gross margin instead of the 2.5 percent in the old system.”

SciQuest partnered with big name companies such as Oracle, SAP and Peoplesoft and acquired numerous major university customers for its procurement system, which can save them up to 20 percent of their “spend costs.”

The company had $16.2 million in revenue in 2006 and expects to do about $23 million in revenue this year.

The company licenses its software on a subscription basis, signing customers to a five-year contract.

Focused on the journey
Wiehe notes that analysts following the 550 or so on-demand-software companies founded since 1999, say that only 5 percent have revenues between $10 and $30 million, and only 8 percent have revenues as large as SciQuest’s now.

That’s quite a change from when it was a public company “with a $2 billion market cap and no business,” says Wiehe.

Today, he says, “My goal is to build the best possible company I can. It’s all about shareholder value.”

SciQuest currently employs 130 people and expects to expand to about 147 by the end of the year. Wiehe says it will move from its present 26,000-square-foot offices to larger quarters when its lease runs out in 13 months. It has an opening for a vice president of marketing. The company hires project managers and customer support people as it acquires new clients.

“We’re beating the three-year plan we had when we rented this office,” Wiehe says. “We don’t like to rent for too long. The old business had 100,000 square feet under rent and only 60 employees and they thought they had forecast accurately. I’m a realist.”

He says these days he doesn’t focus on an exit strategy such as selling the company. “The original founders focused so strongly on going public they built a bridge to nowhere. They had that huge market cap but couldn’t sustain it. You have to focus on the journey, not the destination.”

For part one of the SciQuest turnaround story see:

http://techjournalsouth.com/news/article.html?item_id=3018

For more information on SciQuest see: www.sciquest.com

Join hundreds of Marketing Professionals and Internet Execs at Atlanta’s premier Digital event – Digital Summit 2012
www.digitalsummit.com

Going private: SciQuest’s turnaround, part 2

Related Stories: