After years of operating in stealth mode, Telus subsidiary prepares for initial public offering – The Globe and Mail

A Telus store in Toronto on Nov. 7, 2019.

Fred Lum/The Globe and Mail

If you’ve tracked your workouts, used an app to hail a ride or played video games in recent years, you’ve probably interacted with Telus International; you just never knew it.

The Vancouver-based tech company runs the digital customer experience for clients such as Fitbit, Uber and online gamer Zynga, but works behind the scenes of those global brands. Telecom parent Telus Corp. kept its subsidiary’s financial results a closely guarded secret for the past decade as it built the business through acquisitions. In an interview late last year, Telus International’s president and chief executive Jeff Puritt jokingly referred to the 48,000-employee company as “the drunken aunt you hide in the attic when company come to visit.”

That’s about to change, as Telus kicks off investor roadshows meant to lead to an initial public offering expected to value its offshoot at approximately $7-billion. In a red-hot IPO market for tech-based growth companies, Telus International will showcase itself as a business with sales that are growing at a 17 per cent annual clip, one that turned a US$78-million profit on revenues of US$1.35-billion through the first nine months of 2020, its most recent financial update.

Story continues below advertisement

“We’ve been intentionally, to some extent, kept a secret for quite some time,” Mr. Puritt told The Globe and Mail last November. He said operating in “stealth mode” has allowed the subsidiary to focus on its longer-term growth in sectors such as e-commerce, gaming and social media, making acquisitions that are “J-curve-esque” in nature — in other words, easy to scale up once a platform was launched. Telus International’s results are reported within a segment of its parent referred to as wireline, which also includes the telecom’s internet and television operations and its Telus Health subsidiary.

“We’re going to be a 15-year overnight success at this point,” Mr. Puritt said. Telus International shares are expected to begin trading on the New York and Toronto stock exchanges by the end of March. The company filed its preliminary prospectus with securities regulators earlier this month, but has yet to announce the price range or size of the offering.

Going public will fuel Telus International’s growth by giving the business its own valuation, helping to attract talent and provide capital for future acquisitions. Parent Telus is focused on relatively slow-growing domestic telecom sectors – cell phone and internet services. Telus shares currently trade at about nine times the company’s earnings before interest, taxes, depreciation and amortization (EBITDA), a common metric for valuing companies.

Telus International, on the other hand, is a major player in a rapidly growing, global digital sector. Edward Jones analyst Dave Heger said companies in the high-growth IT services industry are typically valued at much higher multiples than those in the telecom sector. Analysts say Telus International shares will likely command a multiple of 12 to 18 times EBITDA; at the midpoint in this range, the company would be worth approximately $7-billion.

Rival Teleperformance SE, a French-headquartered firm that provides many of the same business and IT services at Telus International, is valued at more than 18 times its EBITDA, according to S&P Capital IQ.

“I can see why Telus, both from a recruiting point of view and from having a currency for future [mergers and acquisitions], would want to have a separate publicly traded stock that more directly reflects the value of that type of business,” Mr. Heger said.

But the listing will also come with greater scrutiny. “The opportunity to continue to operate in stealth mode will be behind us, and we’ll be on to a new movie,” Mr. Puritt said last November.

Story continues below advertisement

Telus will maintain control of its subsidiary through a dual share structure. The parent will own multiple voting shares in Telus International that each cast 10 votes, while public investors will own subordinated voting shares that each have one vote.

Telus is expected to follow a similar blueprint in expanding its Telus Health and Telus Agriculture divisions – growing them both organically and through acquisitions, then spinning them out to surface their hidden value.

It’s not the first go-public transaction that Mr. Puritt has been involved in. In 2000, as vice-president of corporate development at Daedalian Systems Group Inc., he took the small internet services company public through a reverse takeover on what is now the TSX Venture Exchange. The following year the company was sold to Telus Corp. for $29-million; Mr. Puritt came along with it. Over the following years he climbed up through progressively more senior roles at Telus across departments such as finance and administration, ventures, and mergers and acquisitions. In 2008 he was put in charge of Telus International, a fledgling division that, at the time, was little more than a call centre in Manila serving Telus customers as well as a handful of U.S. technology and telecom firms.

Under Mr. Puritt’s leadership, the division quickly expanded into other lines of business such as developing and supporting mobile apps, moderating content online and building virtual assistants such as chatbots.

In 2016, Telus Corp. sold a 35-per-cent stake in the unit to Baring Private Equity Asia, a move that analysts say gave Telus International a credibility boost ahead of the IPO. Three years later, the Hong Kong-based private equity firm partnered with Telus International on the $1.3-billion acquisition of Competence Call Center, a Berlin-based content moderator. A year later Telus International announced it had struck a deal to acquire Lionbridge AI, a data-annotation company, for $1.2-billion. The U.S. Department of Defense is reviewing the Lionbridge acquisition, according to the prospectus.

Industry insiders describe Mr. Puritt as a passionate executive who works long hours and has a keen eye for acquisition opportunities. When he first told his team about his plan to purchase Lionbridge, “many of them looked at me on video conference and said, are you kidding me? Again? What happened to summer vacation?”

Story continues below advertisement

Mr. Puritt’s answer: “We’ll sleep when we’re dead.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.