Guidewire IPO May Attract Capital to Insurance Software Sector

Guidewire Software (San Mateo, Calif.) has gone public with pricing of its initial public offering at $13.00 per share. The stock is expected to begin trading on the New York Stock Exchange this morning under the symbol GWRE. The IPO positions the vendor for success at a higher level, and it also may attract capital to the insurance software sector, analysts say.

J.P. Morgan, Deutsche Bank and Citigroup are acting as joint book-running managers for the offering, and Stifel Nicolaus Weisel and Pacific Crest Securities are acting as co-managers. Guidewire has granted the IPO's underwriters a 30-day option to purchase up to 1,327,000 additional shares of common stock to cover any over-allotments, according to a Guidewire statement.

In an interview with Insurance & Technology, Guidewire's CEO Marcus Ryu said that the IPO only accelerates the vendor's commitment to "the deep problem that P&C insurers have with their systems environment."

Marcus Ryu, CEO, Guidewire, and the vendor's management team, at the "Ringing of the Bell" on the floor of the New York Stock Exchange.

"We would like to express our appreciation to our customers who have entrusted important parts of our business to us and enabled us to grow to this important milestone," Ryu added. "The IPO will enable us to further extend our investment in R&D, which is essential to our core value proposition. The proceeds [from the IPO] will also support our strategy to serve the entire global P&C industry, which in turn will benefit customers around the world through shared best practices."

Guidwire's IPO reflects the magnitude of the company's growth in the last few years and the vendor's commitment to customer focus, innovation and quality, comments Jeff Haner, principal research analyst, Gartner (Stamford, Conn.). Given the company's successful track record, the IPO should position it well for future success, Haner opines.

"However, with this IPO, the bar for measuring Guidewire's success has been raised," Haner cautions. "With greater resources and visibility comes accountability to a wider audience and increased pressure for sustained growth and profitability."

Industry analysts differ as to the impact of Guidewire's IPO on M&A activity within the insurance software market. Chad Hersh, an Austin, Texas-based partner with Novarica, notes that Guidewire is the exception to the trend of claims systems being offered within integrated core system suites, as exemplified most recently by Cover-All Technologies' acquisition of BlueWave.

[For more on Cover-All's acquisition of BlueWave, click here.]

"Whether or not the Guidewire IPO proves successful, it's impact on M&A may be limited, as few vendors share Guidewire's scale and none have its market share and revenue growth," Hersh comments. "For most vendors pursuing additional investment capital in the current environment, the most likely exit for their investors is still via strategic acquisition."

Nevertheless, the Guidewire IPO gives valuable visibility to the insurance software industry, which could increase private equity activity, argues Donald Light, a Palo Alto, Calif.-based senior analyst with Celent.

"The Guidewire IPO shines a favorable light on the entire insurance software sector," Light comments. "More investors and more sophisticated investors in a sector ultimately will help its customers."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio