A technology company spun off from Zurich’s Federal Institute of Technology plans to go public this month – the second such listing this year and the fourth in all.

Esmertec AG, which is based in Dubendorf (near Zurich) and develops software applications, has announced that it will issue five million new shares on the Swiss stock exchange (SWX) on June 30.

The planned flotation follows the successful SWX listing of Geneva-based digital TV hardware manufacturer Advanced Digital Broadcasting (ADB).

Other Swiss companies that went public this year were Dottikon, a spin-off of chemical company Ems Group, and biotech group Arpida – which got off to a weaker-than-expected start.

Esmertec AG, whose customers are mostly in the mobile telephone sector, hopes to raise up to $100 million (SFr120 million) in the initial public offering.

Members of the management team and founders also plan to sell 450,000 of their own shares.

The issue would give Esmertec an implied total market value of about $300 million – an amount that has at least one analyst raising an eyebrow.

Aggressive valuation

"It seems a pretty aggressive valuation in light of the firm’s sales," commented Bank Vontobel equity analyst, Panagiotis Spiliopoulos.

Esmertec reported 2004 revenue of $26.8 million – up from $3.9 million in 2002, which implies a year-on-year growth rate of 162 per cent.

It announced its first-ever net profit earlier this year after five consecutive years of losses, but says it has now clearly turned the profitability corner.

Spiliopoulos said he had been expecting sales to be higher, but added that he was not predicting a negative impact on the young firm’s prospects.

"They might have to leave some money on the table for the success of the share price. But that way they can then go back and raise more capital in a secondary offering further down the road," he said.

As for the appetite for technology shares, analysts are upbeat.

"The capital markets are viewing technology stocks much more positively lately," said Spiliopoulos, pointing to the success of ADB’s float and a general increase in the share prices of technology firms generally.

Helvea technology analyst Reto Amstalden agrees, saying: "Prospects for technology stocks have improved over the past few weeks. The market is slightly biased towards the positive."

University roots

The founders of the company originally developed the software, which enables Java games, messaging and other applications on a mobile phone, over a ten-year period at the Swiss Federal Institute of Technology in Zurich (ETH).

After a short time at Oberon Microsystems, an earlier ETH spin-off based in Zurich, they founded Esmertec in 1999.

Over the years the startup acquired five other small firms and now has development and sales teams around the globe, including China and Japan.

About 90 per cent of its 2004 sales came from the mobile phone sector. But Esmertec has hopes of entering other markets, such as set-top boxes and vending machines.

Venture capital investors include Paris-based Sofinnova Partners, Hamburg-based Earlybird Ventures and Zug-based Partners Group, which will own about a third of outstanding shares after the offering.

They have agreed to a six-month "lockup" following the IPO.

If the flotation is successful, Esmertec will become the second firm founded by former ETH researchers to go public in Switzerland in the past few years.

The other is Cytos Biotechnology, based in Schlieren (near Zurich). The company, which develops novel vaccines for a range of diseases, began trading on the SWX in late 2002.

by Valerie Thompson

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