Vertex goes public on Nasdaq

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Tax technology provider Vertex Inc. went public Wednesday on the Nasdaq and plans to use the extra capital to expand abroad and develop new sales and use tax software and services.

Despite the ongoing coronavirus pandemic, the company decided to move forward with the IPO.

“We’re very fortunate the company has continued to grow through the quarter,” Vertex chair and CEO David DeStefano told Accounting Today. “We announced going public today, which I think is an incredible milestone. We pioneered tax technology 40 years ago, and we’ve got 1,100 employees who have done an amazing job to put us in this position. We have over 50 percent of the Fortune 500 and over 4,000 customers total. I think that speaks to why we’re in the market doing well.”

The King of Prussia, Pennsylvania-based company priced the initial public offering at $19 per share, at the upper end of the range projected earlier this month when the IPO was originally announced (see story). Shares rose 25.95 percent to $23.93 by the end of the first day.

The company had been planning the IPO long before the COVID-19 pandemic hit. “The journey has been a long one, as you can well imagine,” said DeStefano. “But when you think about the pace of change in global business, and the regulatory environment and technology, those things have been accelerating, and the opportunity to raise capital to support that opportunity and actually capitalize on it was the driver of why we’re here today.”

Vertex’s software automates indirect tax processes for large corporate enterprises and mid-market companies with complex tax operations. The indirect tax category includes taxes on items such as food, clothing, business supplies ,and data transmissions from mobile phones. The company sees a great deal of opportunity in this space. In 2019, indirect tax accounted for a total of $3.5 trillion of revenue across the global economy, two and half times the total amount of corporate income taxes.

Another indirect tax software company, Avalara, enjoyed a successful IPO in 2018 and saw its growth fueled that year by the Supreme Court’s decision in the case of South Dakota v. Wayfair, which spurred many e-commerce companies to begin using sales and use tax software, anticipating the many states that would begin requiring them to collect taxes from their customers.

DeStefano doesn’t see Avalara as a direct competitor and is looking beyond the U.S. to expand. “We’re mainly in two different markets,” he said. “Think about the customers who we work with: the largest companies in the world. They already had compliance challenges in every jurisdiction already. We’re in two different swimlanes. We play at the upper end of the market and serve complexity, and really we’re doing it on a global basis. They play at a different end of the market than us.”

Nevertheless, Vertex set up a Vertex SMB unit several years ago to pursue the small and midsized business market, and Avalara also has many large corporate customers in the U.S. and abroad. Other long-established competitors like Wolters Kluwer and Thomson Reuters also provide indirect tax software in the U.S. and abroad.

Vertex is mainly targeting the Fortune 500, but is looking to expand further overseas, especially in Europe and South America. “We’re continuing to grow in many ways,” said DeStefano. “We will continue to innovate and bring new products to market. That has been the hallmark of Vertex for 40 years. We continue to invest in tax content because that is so critical to how we differentiate and win successfully in the market. We’re also going to expand. We’re going to expand in Europe. We’re going to expand in South America, and we want to continue to invest in our partner ecosystem. The market opportunity is so significant that we believe that between the technology partners and the advisory community that we work with, those relationships continue to be nurtured and we will continue to invest there for our success.”

Vertex already has some presence in Europe with offices in London and Amsterdam, and in South America with locations in Brazil, but DeStefano hopes to grow further on those continents, thanks to extra funds from the IPO. “This is about expanding and taking advantage of that capital and using that to expand our presence,” he said.

As with the Wayfair decision two years ago, this could be a time when more companies will be needing sales and use tax software as many states are expected to raise their corporate taxes in response to the pandemic, as they seek to fill the large budget gaps they are facing unless they get more help from Washington, D.C.

“For 40 years we have seen the ups and downs where states look for revenue,” said DeStefano. “I think that’s another great example of how we’re going to differentiate ourselves. We have the largest tax content database in the world, serving the largest companies in the world. And we are prepared for that change. We have got 1,100 employees who are passionate about us continuing to improve our brand. I’m very comfortable that we’ll be able to serve the market, whatever happens in the regulatory environment.”

The pandemic did prevent Vertex from doing the traditional “roadshow” for its IPO that many companies carry out in traveling around the country presenting information and prospectuses to woo potential investors. But the need to do the presentations and meetings online did have some advantages.

Video-conferencing technology enabled Vertex to meet more investors in some ways. “It was a great experience because it was so efficient,” said DeStefano. “We were able to meet with many, many investors very quickly. We didn’t have the arduous plane rides. The investors actually find it to be a very effective way to engage quickly and get right into the dialogue. I think both sides really enjoyed it, and I think the base of investors that we’ve been able to attract to Vertex speaks to how well the message was received about who we are and why we’re the leader in the tax technology industry.”

“We were very fortunate,” said DeStefano. “We had a fantastic roadshow. We met some of the smartest investors who really understood our story, and they saw the value in who our customers were and why the business model is so durable. But we didn’t do this for a one-day pipedream. We did this for the next 40 years of being able to grow as the pace of change accelerates. That’s what we’re focused on right now.”


Even the Nasdaq opening was online, and though the IPO was shown in Times Square, it didn’t exactly occur within Nasdaq headquarters. “We opened on Nasdaq, so it was virtual,” DeStefano explained. “But it actually was wonderful because our culture in the organization has so many engaged employees. Nasdaq does a wonderful job of allowing us to upload photos to the big screen in Times Square. Our employees all got to participate, which is really symbolic of our culture.”

So far, he hasn’t seen any slackening in demand for his company’s technology this year, despite the downturn in the economy. “We have not seen any slowdown or in customers who need new services from us at all, and I would expect that to continue,” he said. “With the innovation that we’re going to drive in the market, I believe that will continue to be the case.”

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