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Financing Solutions that Fit

Stacked with engineers from Nortel Networks Corp. and graduates of Ontario's University of Waterloo, Redknee Solutions Inc. is a growing Canadian technology success story.

Rumours swirled on Bay Street for three years that the Mississauga-based wireless software firm was ready to go public. Two weeks ago, Redknee finally proceeded with a $40-million public offering that gave the seven-year-old firm a market valuation of $155-million.

But Canadian investors will know very little about the homegrown startup. Redknee listed on the London Stock Exchange's junior bourse, the Alternative Investment Market (AIM).

Senior executives say they hope to bring the company "back to North America," but it will probably take them up to two years to reach the size where Redknee can fully implement costly corporate governance systems mandated on major exchanges here.

"The last seven years, as we have evolved as a business, the market requirements for systems and procedures have changed even faster," Lucas Skoczkowski, the co-founder and chief executive officer, said in an interview. "Things like revenue and options policies are very important and require additional people, who we need to bring into the organization, that have dedicated expertise in reporting and compliance checking."

Numerous other technology companies have demonstrated the cost of not having the right systems in place, he said, referring indirectly to Research In Motion Ltd.'s accounting problems that cost the BlackBerry maker its chairman on Monday.

AIM has become a popular launching pad for small-capitalization growth companies, thanks not only to lower compliance costs but also to generous tax breaks and a regulatory regime that is far less restrictive than its North American counterparts.

For example, companies do not have to issue quarterly reports and policing is largely done independently of the exchange by nominated advisers, often the same brokerages that take the companies public. Redknee's nominated adviser, or "nomad," is its underwriter, Canaccord Adams Ltd.

"Going through AIM may be a way for a young or junior company to get acquainted with the reality of being a public company -- that is, dealing with institutional investors and being coached by the nomad in terms of what are the ways to address the preoccupations of major investors," said Stéphane Rousseau, a University of Montreal law professor who has studied the differences between the TSX and AIM markets.

"But [there is a] concern that exchange and regulators in Canada should have," he said. "The question is, are we offering best conditions for junior issuers in the technology sector in Canada right now?"

The Toronto Stock Exchange says it has no plans to alter its governance standards, and points to Sandvine Inc. as an example of a young Canadian firm that looked back to its home market shortly after listing in London.

That Waterloo, Ont.-based company, which sells technology for managing high-speed networks, raised $37.2-million in an IPO on AIM last March. Seven months later, it listed on the TSX. "We'd welcome Redknee if and when they chose to come to us as well," said Steve Kee, director of media and marketing at TSX Group Inc.

Redknee says it will use the proceeds of its offering to increase sales, marketing and customer support in emerging markets, which include China, India, Southeast Asia, Africa and Latin America.

The company sells its software to mobile phone companies that use it to manage features on subscribers' accounts, such as billing and preference settings. It reported a loss of $12.3-million on sales of $37-million for the 12 months ended Sept. 30.

Redknee has been establishing compliance processes since Day One; five of its seven board members are independent directors and the roles of chairman and CEO are separate. A listing on the TSX will provide broader appeal for retail investors, an important point for employees, Mr. Skoczkowski said. "AIM is our first step in being public company."

Posted in: Communications

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