This is the first IPO of a Scottish company since Nucleus Financial in July 2018
Calnex Solutions designs, produces, and markets test instrumentation and solutions for network synchronisation and network emulation, enabling its customers to validate the performance of the critical infrastructure associated with telecoms networks. To date, Calnex has secured and delivered orders from over 600 customer sites in 68 countries across the world. Customers include BT, China Mobile, NTT, Ericsson, Nokia, Intel, Qualcomm, IBM, and Facebook.
The company was started in Linlithgow in 2006 by Tommy Cook in his mid-forties, after spending 23 years with HP and then Agilent Technologies, with a number of the team recruited from Agilent as it contracted during Calnex’s early growth phase – see YCF’s Role Model report in February 2018, where Tommy discusses the differences between working for a multinational and starting your own business in a sector you know well. He was helped greatly in his early years by the mentorship of Campbell Murray of Scottish Enterprise.
Calnex secured significant investment in 2007 from the Discovery Investment Fund angel group in one of its earliest investments, providing seed funding of £420k in two tranches, with a further £540k released on completion of the company’s first purchase order. Hearts owner Ann Budge, whose software development business Newell & Budge was sold to French IT group Sopra in 2005, became a shareholder at this time.
A further round of £150k in 2009 was raised from current investors, including Discovery and a number of Calnex employees.
The company grew year on year, and just 18 months after launching its Paragon telecoms testing platform, it was able to announce that revenues had already reached £1 million. However, it became difficult to raise the capital needed to fund its growth strategy, which included acquisitions of complementary businesses to strengthen and expand its product range.
In March 2018 Calnex acquired Belfast-based JAR Technologies, funding the deal with a loan from alternative finance provider ThinCats. Tommy Cook commented “ThinCats fills an important gap in the market for ambitious SMEs that are looking for a competitive source of funding to drive acquisitions and growth. The quantum we required sits somewhere between angel investment and venture capital, so we are pleased that an alternative finance provider has emerged that is aligned with our business and supportive of our plans to scale.”
In May 2019, Calnex acquired Berlin-based Luceo Technologies GmbH. Although the company was subsequently closed down, it was part of an important learning process for Calnex, which helped spur it to considering an IPO.
Throughout this period, Calnex found banks reluctant to consider lending to the company. Tommy Cook reports that, having engaged with several of the best known banks and found them unwilling to lend lower sums, there was little point in trying to persuade them to lend £2 million, the amount required to make the acquisition strategy feasible. One bank came close prior to the acquisition of JAR Technologies, but bizarrely required half of the deal to be in the form of invoice finance – not needed by Calnex with its customer base of large global corporations.
Calnex chairman George Elliott, previous chairman of Craneware and a non-executive director of Indigovision and therefore well acquainted with the pros and cons of going to the public markets, approached broker Cenkos, which thought it would be possible to achieve a successful IPO on AIM. At this point equity investor BGF, with whom Calnex had maintained contact over several years, was approached and took on the role of cornerstone investor for the flotation.
In the event, the IPO was slowed down by the coronavirus – having hoped for a couple of months’ activity as a quoted company, Calnex started on AIM with the need to immediately start work on their half year update to the market – but exceeded Cenkos’s expectations on capital raise.
Calnex Solutions (AIM:CLX) was admitted to AIM on 5th October, having raised £22.5 million through a placing, of which £6 million is invested in the business and £16.5m returned to shareholders, giving a market capitalisation on admission of £42 million. The share price on admission was 48p, and at the time of writing had increased by 17% to 56p.
Tommy Cook continues to be the major shareholder with 21% of the company. BGF Investment Management holds 15% of the equity and Scottish Enterprise 9%. Ann Budge continues as a shareholder but has reduced her stake from 5.9% to 3%.
The telecommunications industry is going through unprecedented levels of change, presenting exciting opportunities for the expansion of the business. The implementation of 5G, the emergence of the Internet of Things, and the shift to using cloud computing are all agents of change to the structure of telecom networks around the world.
Tommy Cook commented “Joining AIM is a significant landmark for Calnex. The successful fundraise and move onto the public markets provides us with the resources and means to expand our product portfolio, both organically and through acquisition, to take advantage of the significant structural changes taking place in the global telecoms industry.”
YCF subscribers can find reports on all the transactions mentioned above in the YCF online archive.