Milestone CEO Book: Why He Aborted the IPO and Chose Canon

Milestone's CEO just published [link no longer available] a 205-page book titled 'Business Magnetism'.

Why? No idea. Would assume he had better things to do...

The first 150 pages are painful, with statements like:

"They realize the rarity of this opportunity, and feel the pressure to succeed, but delving into this unchartered territory is also liberating."

and:

"As I go about my daily life, I try to exemplify Kierkegaard’s idea by never becoming complacent and always challenging the status quo."

One of the ways he did that was:

"In a meeting which is likely to be difficult or tense, I equip the room with a small pillow. When people feel frustrated or angry, I explain, they should feel free to release that tension by yelling loudly into the pillow"

But right after teasing about the original ending of the book, it starts getting very interesting as he explains the issues in the IPO process and why it was aborted in favor of choosing the Canon acquisition, including how Avigilon hurt their IPO prospects.

Problems With Secrets

Milestone lied about not preparing for an IPO. It weighed heavily on them, admitted the CEO:

"Rothschild were insistent, but I felt that keeping this secret wasn’t my style. It wasn’t Milestone’s style. It was antithetical to the Scandinavian management style of inclusiveness that we had built the company upon."

Under Scrutiny

Worse, Milestone's CEO feared the scrutiny of the public:

"[Being] listed, our visibility would be raised dramatically, and we’d constantly be under scrutiny by journalists. To be totally honest, it wasn’t something I was looking forward to."

This is a real problem, as both Avigilon and Axis can attest to. And when things go wrong or your numbers are not met, everyone can find out and many will talk, creating real management and field issues.

Showing Money

Unlike the US, where entreprenuer millions are routinely cheered, Milestone's CEO says it is different in Denmark:

"They’d be thinking, “the original owners have made a lot of money.” It’s perhaps different in the US or elsewhere in the world. But here it’s similar to what the Australians call ‘Tall Poppy Syndrome’ – cutting down the flower that stands highest in its field."

Avigilon CFO Crisis Hurt Milestone

As the IPO was in process, Milestone's bankers cut Milestone's valuation, as the CEO admitted:

"They also need to provide reasons to underpin their lower valuation, and in this case they pointed to a North American competitor of ours (whose share price at the time was spiraling downwards), and their CFO had resigned. So they said that they were being forced to lower their valuation as a result of this market activity."

Avigilon's former CFO is not only responsible for triggering the start of Avigilon's decline but played a role in weakening the attractiveness of a Milestone IPO, as a falling Avigilon stock price served as a weaker comparable for Milestone's IPO price.

Lack of RMR

The overwhelming majority of Milestone revenue is one time VMS licensing, which leads to lower valuation than subscription businesses. The bankers wanted to emphasize / set expectations of more recurring revenue which Milestone was reluctant to do:

"Lars Larsen, our CFO, really took charge, and stood his ground. The bankers were incredibly persistent, determined that they were going to get him to provide this information about ‘recurring revenue’, and he just refused, time after time. Bankers’ response was to say again that if we couldn’t provide this information, then we couldn’t argue for a higher valuation."

Canon and a Big Bag of Cash

By contrast, Canon offered a private deal, where they would not have to tell anyone the price paid nor what they were doing (though Danish law still requires annual disclosure - see Milestone's 2014 Financials Revealed).

Industry people continue to say the deal was in the $400 to $500 million range, which would be a lucrative ~5x Milestone's revenue. Of course, Milestone's CEO did not disclose the price but considering Canon way overpaid for Axis less than a year later, we would not be surprised if it was a rich, imprudent deal. 

The Future

Milestone's CEO ended his book talking about the future. In our next post, we examine his focus on 'the world of visual services' and the fight against 'CCTV2.0'.