Ellison's NetSuite Headed for IPO

Oracle's chief executive plans to take his accounting software company public in a September auction. Critics worry about his role

by Aaron Ricadela

Make way for Larry Ellison's other company. NetSuite, begun in 1998 with a slice of the personal fortune of the Oracle (ORCL) chief executive, is readying a long-delayed initial public offering.

NetSuite, a seller of accounting software, plans to raise $75 million from the sale, according to documents filed July 2 with the Securities & Exchange Commission. The company will sell at least 10% of itself in a transaction that would value NetSuite at $750 million, BusinessWeek has learned. Ellison, worth an estimated $21.5 billion, has invested about $93 million in NetSuite and controls about 74% of the company.

Credit Suisse (CS) will lead the offering, with W.R. Hambrecht as co-manager. NetSuite's sale would mark one of the few software IPOs of the year and may provide a test case for auction-style IPOs three years after Google's (GOOG) high-profile debut. The IPO would value Ellison's share at more than a half-billion dollars and revives concerns over his prominence at a potential Oracle rival.

The Auction Approach

Of an estimated 17 tech companies that went public during the first half of 2007, only four were software vendors. Factor in the nearly three years NetSuite has been promising to offer shares to the public, and it's apparent why investors are eager for a cut.

Those would-be stockholders will get a chance to set the price for the stock through an auction, a process that in theory could yield a higher price than a traditional offering where banks sell large chunks of stock to mutual fund companies and hedge funds. The conventional approach ensures stock ends up in the hands of long-term investors, but risks underpricing shares. In an auction, NetSuite would be able to solicit bids in advance and offer shares at a price close to what the market will demand. "The argument is you'll likely leave less money on the table," says Lise Buyer, principal of IPO advisory firm Class V Group, and a former Google executive who helped lead the company through its IPO.

But Google's offering raised hackles among bankers—including Credit Suisse—who wanted to place more shares with their clients. "With the exception of W.R. Hambrecht, none of the underwriters wanted the auction viewed as a big success," says Jay Ritter, a finance professor and IPO expert at the University of Florida who advised Google on its watershed 2004 offering.

Long Time Coming

To avoid a rerun, NetSuite has reduced the number of banks involved. Google listed seven investment banks on the cover of its prospectus, including Morgan Stanley (MS) and Credit Suisse, and involved nearly 30 in the final process. "It's always tougher when you're not fully in charge," says one person with knowledge of NetSuite's auction. During the bidding for shares—expected in September—Credit Suisse and W.R. Hambrecht clients will be able to place bids through those companies, while retail investors will bid on NetSuite stock through E-Trade Financial (ETFC), according to people familiar with the process.

NetSuite's IPO has been a long time coming. The company got its start as NetLedger when co-founder, Chairman, and Chief Technology Officer Evan Goldberg, who'd spent eight years at Oracle as a high-ranking software engineer, convinced Ellison to bankroll his venture, which would sell accounting software to small companies online. Around the same time, Ellison helped former Oracle salesman 1 2 3 Next Page