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IPO sets software firm NexJ on path to profit

By Alastair Sharp

TORONTO (Reuters) - NexJ Systems Inc saw a window to go public last May and jumped through it. It's using the fresh cash to expand its existing software for wealth managers and insurers to move into healthcare, and isn't afraid to buy companies to aid its growth.

While the Toronto-based company will likely not turn a profit for several years, Chief Executive William Tatham sees a route to that goal in software that improves a patient's access to their own medical records, while saving time and money for hospitals and insurance companies.

"We don't see fixing the healthcare system and the profit motive as mutually exclusive," Tatham said in an interview on Wednesday. The company's healthcare products are already being used in several trials at hospitals and universities, which Tatham hopes will lead to a boost in sales.

The push to digitize and streamline medical records is gaining steam as developed countries grapple with aging populations and a rising burden from healthcare costs.

NexJ faces competition in its home market from telecom company Telus, which has spent around C$800 million ($808 million) to push into the e-health business.

While Canadian technology companies have struggled to raise funds and win decent valuations in recent years, NexJ has raised some C$70 million over the last two years via a private placement with institutional investors in 2010 and last year's initial public offering.

"We got our money and no one else did," Tatham said about the dearth of available funds in Canada. "The time to take tea is when tea is being served."

And Tatham's team remains firmly in charge.

"It's an anomaly, but it's important," he said about the management team retaining control after the fundraising process: 51 percent of NexJ's equity is held by a combination of its 335 employees, management and directors.

The interest from investors can in part be tracked to Tatham and his management team's prior experience. They built and then sold Janna Systems to Siebel, now part of Oracle, in 2000 for $1.7 billion, a massive return on the C$24 million in funding it had raised over ten years.

Days after a three year non-compete agreement with Siebel lapsed, he started NexJ.

PROFIT, ACQUISITIONS EYED

Most of the company's 2011 revenue came from software to help wealth managers track their clients - three of the six largest global wealth manager use NexJ, including Wells Fargo and Morgan Stanley - while insurance brought in more than one-third of the C$30 million in sales.

Tatham expects NexJ to grow by 25 percent annually over the next three to five years, and to turn a profit by the time sales are in the C$80 million to C$100 million range as healthcare grows to eventually become NexJ's biggest market.

The company has C$60 million on hand, which Tatham says is enough to run the business for a decade, and is in talks to buy up to three companies active in its three main markets.

In between Janna and NexJ, Tatham ran a venture capital firm called XJ Partners, which incubated NexJ and has since helped it learn of potential targets early in their growth phase.

NexJ is trading around the C$8 mark on the Toronto Stock Exchange, giving it a market valuation of almost C$160 million.

($1=$0.99 Canadian)

(Editing by Rob Wilson)

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