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Saskatchewan success story may not travel well

The government of Saskatchewan had a hot tech IPO in the works. So, it named the company "Information Services Corp."

I love Saskatchewan, but really, guys, that's no way to shake the "most boring province" label.

The deeply indistinct name did not hurt the former Crown corporation in its TSX debut Tuesday; priced at $14, it topped $16 at one point before closing at $15.87.

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Still, its lack of attention to branding serves as a warning to investors outside its home province. Even though the company says it's poised to be a Canadian, and even international, growth story, its shares are probably best left to the people of Saskatchewan.

Information Services Corp. operates a number of electronic databases for the province, including the land titles, personal property, and corporation registries. It makes its money through fees, either from the people recording, for example, their land transactions, or from people searching the databases for information.

It's a good business to have been in, as the Saskatchewan economy has exploded. Since 2009, the company has grown revenue at an average annual rate of more than 10 per cent; EBITDA, or earnings before interest, taxes, depreciation and amortization, haven't been far behind.

Information Services has a 20-year exclusive agreement to keep operating the registries for Saskatchewan, so its core business will grow as long as Saskatchewan, and its property values, do. If you want to bet on the province's future, this is about as pure a play as you can get. (Disclosure: My family owns farmland in the province, and I spend time in Saskatoon. I wasn't kidding about loving the place.)

The issue, however, is that Information Services Corp. wants to take its show on the road. The company's prospectus says its growth strategy involves not only offering its services to municipalities in Saskatchewan, but also signing up customers, both in the public and private sectors, elsewhere in Canada and in other countries. "To our knowledge, no competitor currently has experience in providing end-to-end registry and information services offerings, across a range of registry types similar to ISC, that would enable them to demonstrate a proven long-term capability similar to us," the company says in its offering prospectus.

Well, okay. But it must compete against Teranet, the company that provides electronic property search and registration in Ontario. Teranet recently won the deal to operate Manitoba's personal property and land title registries. There are only so many provinces, after all.

To grow nationally and internationally, Information Services says it will be "building a network of partners to assist with opportunity identification, selling, implementation and ongoing support."

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The simplest way to describe all this is to say the next deal Information Services Corp. signs outside Saskatchewan will be its first.

In the meantime, there are some reasons to explain why the company's shares rose on their debut. Even after Tuesday's gains, the planned annual dividend of 80 cents represents a 5-per-cent yield. With healthy and increasing margins, the company says its "cash available to pay dividends" was $1.33 a share in the 12 months ending in March. If the Saskatchewan boom continues, Information Services can grow its top and bottom lines even if its growth aspirations fall short.

However, the $147-million proceeds of Tuesday's IPO flowed to the Saskatchewan government and the underwriters, not the company; debt makes up about one-third of the company's capitalization. It will begin paying market rates of interest, not the amounts subsidized by the Saskatchewan government, and the company will now also owe taxes.

Saskatchewan has also put into place restrictions on share ownership: No one can hold more than 15 per cent of the outstanding stock, and the provincial government owns a single "golden share" designed to keep the company and its employees from leaving Saskatchewan. In other words, a takeover, at a premium to the shares' market price, is unlikely.

Information Services planned to set aside enough of the offering so that roughly 70 per cent of the company is owned by the provincial government, the residents of Saskatchewan and the company's employees. I understand their warm feelings toward a Prairie success story. I'm not so sure I understand the appeal for all the shareholders outside Saskatchewan.

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More

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