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Ross Video CEO David Ross rethinking plan to take firm public in 2025

November 18, 2024

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Ross Video CEO and majority shareholder David Ross says he is putting plans to take the company public on the back burner and is now leaning toward securing a private investment partner to help fund the firm’s future growth. In an interview last week with Techopia, Ross said he reconsidered his goal of launching an initial public offering in 2025 after talks with potential investors led him to conclude his Ottawa-based company would not achieve the valuation he had hoped for in the public markets. “I would say that while the IPO is potentially still on the table, I’m focusing more of my time right now on seeing what the private-equity side of things has to offer,” he explained. Ross revealed the change in direction after his company closed out its latest fiscal year on Oct. 31 – its 33rd consecutive year of revenue growth. Ross Video’s revenues grew nine per cent over fiscal 2023 – well below its average of 17 per cent year-over-year growth during the past three-plus decades. Ross said he was “disappointed by” the latest figure, even though he conceded he “kind of engineered it” himself. Although Ross Video’s longtime chief executive traditionally hasn’t been shy about pouring money into R&D and acquisitions – a strategy that’s allowed his firm to gobble up market share from its competitors – he said he felt compelled to dial back spending in recent quarters in an effort to boost Ross Video’s EBITDA margins. Ross noted public markets put a heavy emphasis on EBITDA – earnings before interest, taxation, depreciation and amortization – when evaluating a company’s potential worth. The higher a company’s EBITDA, the higher its opening stock price is likely to be when shares go on sale. But Ross said maximizing earnings comes with a cost. “I think we’ve been a little bit more cautious recently,” he said. “I found that to increase EBITDA past a certain point, you have to start pulling levers back to slow down R&D and sales and marketing expansion. I’ve been doing that for a little while, and I’m finding, to be quite honest, it doesn’t match my personality. I’m used to just going for it.”

No road show

While Ross and his executive team haven’t staged an official “road show” to introduce the company to potential investors, he said he’s talked to enough of them to conclude an IPO might not be the best route for Ross Video. For example, one potential investor described the company as a “middling investment” because it wasn’t delivering annual growth in the 22-25 per cent range the investor was looking for, Ross said. Others questioned his preference for investing in homegrown R&D rather than bolstering IP by acquiring other companies, arguing that spending on research lowers a firm’s profit and EBITDA margins and, by extension, its value on the public markets. “The response that started to come back was, ‘You’re worth less now for telling us that than you were five seconds ago,’” Ross recalled. “I’m like, ‘How does this make any sense?’ In the end, we are going to grow, we’ve got the formula. We know how to do it. This is not rocket science for our company. It’s business as usual.” Ross said the emphasis for publicly traded companies to hit quarterly targets is at odds with his philosophy of making investments in people and technology that are designed to pay off over the long haul. “The public markets have a tendency to drive mediocrity. Being consistent is almost more important than growth, and if you miss a quarter you’re going to be in the doghouse for a year or two,” he said, adding he’s hoping to “find a partner that is a little bit different – that is excited about saying, ‘I’m going to be here five years from now or seven years from now.’” Ross also suggested that Ross Video doesn’t fit the image held by a lot of investors of a successful public company. “I guess maybe I naively hoped that people would look at Ross differently because of our growth profile,” he said. “One of the challenges in some ways is we go up the middle. We’re not a utility that will just stamp out cash and profits and dividends, where it’s zero risk; we are not a rocket growth company that is seeing 100 per cent growth year-over-year into a trillion-dollar (total addressable market). We are a solid, 17 per cent year-over-year growth, internally funded, profitable company.” Still, as Ross Video pushes toward half a billion dollars a year in annual revenues, Ross remains as optimistic as ever about the company’s future. As a relatively new CEO 15 years ago, he challenged what was then a niche broadcasting equipment provider to aim higher, setting out a BHAG – a “big, hairy audacious goal” – of more than doubling revenues from $46 million to $100 million within five years while boosting profitability.

Billion-dollar BHAG

Ross Video accomplished that and then some, reaching $112 million in revenues by 2014. Now, its CEO is throwing down the gauntlet once again, with a new goal he refers to as B1B, for “the BHAG one billion.” Simply put, Ross wants his company to go from projected revenues of $460 million next year to $1 billion by 2030 – all while becoming even more profitable. “We’re moving the decimal place one over,” he said with a smile. “In 2030, we expect to exceed a billion dollars (in revenue).” The math, he explains, is pretty straightforward. If Ross Video can match its three-decade growth average of 17 per cent for the next five years, the BHAG will be a reality. Ross crunched years’ worth of numbers to see if there’s a correlation between higher R&D spending and more revenue growth. To his delight, he concluded there is – a finding that has reinforced his belief that a private-equity partner is the right choice for Ross Video. “I think laying that (billion-dollar revenue goal) down gives a little bit more meat on the bone for the investor we’re looking for,” he said. “Somebody who gets excited about that is the one that we’re going to partner with.” Ross Video, which does most of its manufacturing in the Eastern Ontario town of Iroquois, now offers “at least a dozen product lines” that are first or second in global market share, Ross said. He sees no reason why that number can’t be much higher. “We have probably two or three times that many that aren’t (No. 1 or 2), but are contenders,” he added. “When we started the BHAG back in 2009, we had no product lines that were No. 1 or No. 2 in the world. What we need to do is continue the existing trend that we have where we elevate product lines that have been brought on either organically or through acquisition to the No. 1, No. 2 position in the world, right beside all the other product lines we have for the exact same customers that are already one or two in the world.” To that end, as much as Ross values his firm’s R&D acumen, he’s never been afraid to spend money on acquiring new product technology if a deal makes sense. He’s currently putting the finishing touches on the 21st acquisition of his career and is already scoping out deal No. 22. And it sounds like there’s plenty more to come. “We’re going to continue to buy technology and talent and turn them into world-beating businesses.”