Investors educated by software firm’s steep learning curve
A management buyout (MBO) scheme places a €353.1m value on the company founded by former teacher Pat McDonagh who is putting his 20.86% holding in the company behind the MBO led by chief executive Barry O’Callaghan, with 5.06% of the shares.
When Riverdeep, founded in 1995, floated on the Nasdaq in March of 2000 at the height of the dot.com boom, Mr McDonagh’s 53% holding in the company almost made him a billionaire on paper at least with his stake valued at $951 million.
In June 2000, Mr McDonagh reduced his stake in the company to 20.86% as the share price faltered but he still managed to bring in €115m. His remaining stake is worth an estimated €73.63m.
Mr McDonagh is a multi-millionaire but those who invested in Riverdeep may not fare as well. Just a year ago the shares traded at €4.90, well ahead of the bargain basement price of €1.42 offered by Mr McDonagh and Mr O’Callaghan.
Riverdeep is the clear market leader in educational software and sells excellent products to the US education sector where some $340 billion is spent. Most commentators regard the MBO approach to be optimistic.
Merrion Capital’s John Coolican said: “The approach which may lead to an offer for Riverdeep, looks opportunistic and comes at the end of period where the share price has suffered largely because of the company’s track record of inadequate and poor communications with the financial markets. Its voluntary de-listing from the Nasdaq is a further negative for the rating.”
Mr Coolican said a number of other factors have also combined to lead to a severe derating, including:
A trail of acquisitions which has heightened execution risk and clouded investors’ views of the underlying organic growth of the core product sales.
Lingering market concerns regarding Riverdeep’s accounting policies.
The slowdown in US state funding which has stalled growth amongst its entire peer group.
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