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Monday, August 14, 2006

InnerWorkings' IPO Preview: A Mixed Bag

InnerWorkings (INWK) is on the IPO docket for this week. It is expected to sell 10.6 million shares at a price range of $8.00 to $9.00; Morgan Stanley, Jefferies, Piper Jaffray, William Blair, and Morgan Joseph were listed as underwriters for the offering. Pricing is anticipated for Tuesday night with a Wednesday trading debut.

This is in an interesting space, as they outsource printing procurement and logistics services to corporations in the US. They are centrally located in Chicago, but plan to expand their geographic footprint. The company claims a network of 2,700 suppliers with most recent data saying that 69% of revenue came from enterprise customers for all of their printing solutions on a recurring basis. It was formed in 2001 and has been operating since 2002. Last year's 2005 revenues were $76.9 million, up from $38.9 million in 2004. For the first 6 months of bueinsss in 2006 it posted revenues of $57.6 million, up from $31.2 million in the same 6-months from 2005.

Of the proceeds going to the company, it looks like just under $10 million is for credit repayment and for a preferred dividend. The rest is being used to expand its salesforce, working capital, and expansion. 7.06 million shares are being sold by the company, and just over 3.5 million shares are being sold by holders.

So far there has been very little street buzz around the deal, so it is hard to say where pricing interest for a traditional business may be in order. After looking into this, the company said 66% of its business was from inside the state of Illinois, and it is going to hire more sales and marketing for other markets like Boston, L.A., Minneapolis, New York, and San Francisco. 23.6% of the company's 2005 proforma revenues have come from an acquisition (Geography Limited LLC) it made just in May of 2006.

So all in all, this sounds like a good growth story on the surface. Unfortunately it has a significant portion of its growth on the books backed-in from an acquisition. That won't go without notice, so we'll have to see if any talk comes up between now and the pricing on Tuesday night. This acquired growth is not an automatic red flag, but it will make selective investors question some of the astronomical growth for such a new company.

More information can be found on the the company at the website.

Jon C. Ogg
August 14, 2006

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