Smart Technologies: Chairing the Smartboard Market

NEW YORK ( TheStreet) -- Smart Technologies ( SMT), which holds about 48% of the interactive whiteboard market, might just be the hottest public upstart that analysts -- and you -- have never heard of.

Featuring Net access, Web-browsing, a media player, Microsoft ( MSFT) PowerPoint and the ability to draw and manipulate figures on the screen, Smart Technologies' Smart board represents a major leap in tech for classrooms and meeting rooms. The company has been able to combine highly engaging functions and interactivity with relatively low-cost materials; the leading large-screen Smart board sells for less than $4,000 to schools, a fraction of the cost of big touchscreen LCD monitors.

Flaunting all this, the company arrived on Wall Street with a big splash earlier this month -- the largest IPO of the year so far. But the stock, which was priced at $17, has traded in the $16 range for the past week.

From a sales perspective, Smart Technologies has enjoyed big growth. Last year, revenue increased 43% to $648 million for the year ended in March. The company also booked a profit of $142 million for that period. But a big portion of that growth came from federal stimulus money that provided school with bigger budgets for tech upgrades.

This raises a question that looms over the stock: Are Smart Technologies' strongest growth rates now behind it?

"We see growth opportunities ahead," said CEO Nancy Knowlton, who founded the Calgary-based company with her husband, David Martin. She pointed out that interactive whiteboards currently sit in only about 7% of the education market. And Knowlton sees growth beyond education in "accelerating the adoption of our products in the business and government segments and expanding our global focus."

Colin Messenger, senior consultant with interactive whiteboard market research shop Futuresource, predicted that the industry will grow 24% this year, continuing a healthy three-year trend.

"If one classroom has one, soon all the others will too," said Messenger. "Demand is so great and schools have money; it just depends on what they chose to spend it on."

But as the market grows, so do the competitors: Now that smartboards are a $1 billion business, Messenger expects larger electronics manufacturers to enter the market for a piece of the action. Outfits like Dell ( DELL), Panasonic, Samsung and LG would be players likely to jump aboard.

Another cloud hanging over Smart Technology's stock is the large stake held by private equity firm Apax Partners, which, due to a restructuring in 2007, holds more than 50% of the company.

Smart Technologies' first effort to go public came in 2000 as the bubble burst in the tech market. After managing through the downturn by expanding products beyond Smart boards, pushing into regions outside North America and reorganizing its ownership structure in 2007, Smart Technologies put an IPO target on 2010.

"We were ready to become public and potential investors were receptive to our story," said Knowlton.

Smart Technologies' IPO generated $758 million in proceeds and the company managed to pocket $135 million; it plans to use $59 million to pay and refinance debts. But the bulk of the money went to major stakeholders Intel ( INTC) and Apax, which means that although Knowlton and Martin are the founders and top two executives, it's Apax that has the most influence over the business.

According to the allocation of the company's class B shares, Apax holds 41.5% of the voting power. Knowlton and Martin holding a combined 32.4%, and Intel holds 21%. But after Apax booked its IPO gains, one of its two board representatives left, reducing Apax's presence at board meetings. This is presumably a sign that Apax will take a less active role in the company.

"My husband and I did not sell into the IPO and we remain actively involved in the business," said Knowlton. "In fact, we converted our debt into shares and increased our holdings at the time of the IPO. We have demonstrated that we have been able to manage through some of the challenges associated with growth and expansion."

Time will tell if Knowlton and Martin will be able to keep Smartboards at the head of the class. Until then, their Smart Technologies is definitely a stock to watch.

--Written by Scott Moritz in New York.

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