UPDATE 1-Ubiquiti breaks US IPO drought amid Iran controversy
* Company violated U.S. law; sold to Iran, othersBy Clare BaldwinOct 13 (Reuters) - Wireless equipment maker Ubiquiti
Networks Inc broke a two-month drought in the U.S. IPO market
on Thursday pricing shares in its initial public offering at
the low end of the expected range.The company and its owners sold 7.04 million shares for $15
each, raising $105.6 million. They had planned to sell 7
million shares for $15 to $17 each. Earlier on Thursday the
company lowered its price range from $20 to $22 per share.Prior to Ubiquiti, the U.S. IPO market had been shut for
two months. It closed in August for a traditional summer
holiday, but then failed to reopen as concerns about Europe’s
debt crisis and a weak economic recovery in the United States
made markets volatile.Yet even as Ubiquiti has been successful in completing its
IPO, it faces a big challenge in addressing concerns about its
corporate governance.Ubiquiti, whose shares will trade on Nasdaq under the stock
symbol UBNT.O, makes wireless networking and video surveillance
equipment. It said in its prospectus that certain of its
products were sold to Iran, Cuba, Syria, the Sudan and North
Korea and that some of its encryption components were sold
without the appropriate export authorization.A review of Ubiquiti’s sales to Iran by the Department of
Commerce’s Office of Export Enforcement earlier this year
resulted in a warning letter, but no criminal or administrative
prosecution or other penalties — but Ubiquiti remains under
review by the Department of the Treasury’s Office of Foreign
Assets Control.Depending on the outcome of that review, Ubiquiti could
face fines, lose its ability to export and be referred for
criminal prosecution, it said in its IPO prospectus.Seventy percent of Ubiquiti’s fiscal 2011 revenue came from
overseas. U.S. relations with Iran are particularly sensitive
right now because of an alleged attempt by Iran to assassinate
the Saudi Arabian ambassador in Washington.”Our lack of sufficient familiarity was largely due to our
lean corporate infrastructure, the inexperience of our
management team in these matters and the fact that our products
are manufactured outside the United States and most of our
products never enter the United States,” the company wrote in
its IPO prospectus.The company said it did not mean to violate U.S. law. In
fiscal 2010, it recorded an expense of $1.6 million for export
compliance, which it said is its best estimate of its exposure
to fines. It said its business could suffer if any actual fines
are materially different.Ubiquiti was not available for comment.Nick Einhorn, an analyst at Connecticut-based IPO research
and investment house Renaissance Capital, said Ubiquiti’s sales
to countries such as Iran were unlikely to be a deal-breaker.”The numbers that the company has shown so far are
impressive and definitely enough to interest investors,”
Einhorn said. “They’ve grown very quickly and have good
operating margins.”For the year ended June 30, Ubiquiti posted a net income
attributable to common stockholders of $4.98 million on revenue
of $197.87 million.SMALL OPERATIONAs of June 30, Ubiquiti had about 92 full time-equivalent
employees in four offices globally. It has no direct sales
force, but instead relies on distributors, resellers and
original equipment manufacturers.Chief Executive Robert Pera is a former wireless engineer
at Apple Inc . Other company executives currently
include former Cushcraft Corporation/Laird Technologies
engineers and a lawyer. The Chief Financial Officer is a former
CFO at digital printing company Electronics for Imaging Inc.Ubiquiti said it first learned that its products could not
be sold into Iran or other countries subject to U.S. embargo in
March 2010, in connection with due diligence performed as part
of a transaction with investor Summit Partners.One Ubiquiti distributor continued selling products to Iran
after it was told not to and another was discovered doing so.
Ubiquiti also continued to use incorrect export authorizations
for its encryption components for a time after discovering the
problem because it did not understand how to comply.Ubiquiti said it has since revised its distribution
agreements, disabled software downloads in certain countries
and obtained the appropriate paperwork for its encryption
products.Most of the shares sold in the IPO were expected to come
from Ubiquiti’s owners. The company was only planning to issue
2.4 million new shares, the proceeds of which it said it would
use to repay debt.When Ubiquiti cut its price range on Thursday, it said
Board member John Ocampo, who owned less than 1 percent of the
company, had indicated he was interested in purchasing stock in
the IPO. That indication was nonbinding.The IPO’s underwriters were led by UBS Investment Bank,
Deutsche Bank Securities and Raymond James. The shares are
expected to begin trading on the Nasdaq on Friday under the
symbol “UBNT.”
