Paradigm Geophysical sheds the shackles of Wall Street to pursue its vision.

Even though the number of initial public offerings (IPOs) has abated slightly since the e-commerce craze of the late 1990s, "going public" is still the stated goal of many growing private companies. The cash infusion from an IPO can definitely kick-start a small company with big dreams.
But that public funding comes with some headaches, including the need for quarterly earnings statements which, if they are anything less than stellar, tend to negatively affect the stock price, and the unrelenting surveillance of analysts who are constantly vigilant for any chink in the armor.
Many companies in the energy sector, particularly those that develop new technology, have found that the timeline to develop a product and introduce it commercially tends not to coincide particularly well with those frequent earnings statements. The choice is to invest less in technology for short-term gain and long-term stagnation or ignore the dividend desires of the shareholders and get hammered in the market.
Paradigm Geophysical, an Israel-based company providing technical software and services to the E&P industry, decided there was at least one other choice - become a private company again. In June, Paradigm's shareholders overwhelmingly approved a move to allow newly created Paradigm Geotechnology B.V., a Netherlands-based company, to acquire 100% of the outstanding Paradigm shares. Paradigm Geotechnology is owned by a limited partnership organized by affiliates of Fox Paine & Co. LLC, a San Francisco-based private equity investment firm.
So why buck the IPO trend? According to Paradigm Chief Executive Officer Eldad Weiss, Wall Street was part of the reason. "Wall Street has definitely changed in the past 2 or 3 years," he said. ""It's a more volatile market, and it's more appropriate for bigger companies."
He added that a smaller company trying to pursue aggressive growth couldn't maximize its opportunities by being public. "We are now in a position to make more significant investments in technology development along with further acquisitions."
It's almost like a new lease on life. The company can leverage its many years of investment in technology and work to redefine itself more as a services and solutions company and less as a software vendor. It also has a partner who's on board with its ideas.
Of course the deal is not without its risks. Weiss likened it to a marriage. "Risk exists, but hopefully we've found a suitable partner," he said. "To their credit they took a significant risk by putting $100 million on the table."
Fox Paine, he said, looks at about 200 potential transactions per year but only selects one.
"Fox Paine decided it wanted to go into the oilfield services sector," Weiss said. "They looked at several companies, and we were fortunate to be at the top of their list. This implies that they bought into our vision."
That vision includes a move from geophysical solutions into reservoir engineering. "What we've seen is that we've been moving more and more into reservoir study services. We call them 'trace to target' workflows, comprehensive workflows that take the data from raw data all the way to drilling recommendation or well design or production," Weiss said.
This has required the acquisition of several smaller companies with technology that became part of the bigger picture. And the end result has been bragging rights more often assumed by oil companies than service companies. In the past few months Paradigm employees made four major discoveries for their customers.
"In the past we had the tools and sold them to our customers," Weiss said. "Now we are in the position to really give them full recommendation. We can help them find oil or optimize the reserves from their fields."
The integrated workflow concept isn't totally new, but Weiss said that in larger companies, legacy departmentalization makes integrated workflow and asset teams difficult. His sense is that a solutions provider can be of more use to these companies by offering services as well as products.
And while a large company might argue that it has people in-house who are paid to do these things, the reality often is that through consolidation and lay-offs there are fewer people to manage the same number of assets. Outsourcing the work to a specialist might begin to seem like a pretty savvy idea.
"What we are seeing, and telling our customers, is that the technology is changing very fast, for example in computing, seismic imaging, visualization and volume interpretation," he said. "I think our customers understand that rather than spending their time being sure they're on the leading edge, perhaps they should leave that to a company like Paradigm. They can focus on exploration, and we can focus on providing them solutions using the latest technology."
But it pays to keep abreast of business trends. Weiss is adamant about a few things: his company is not going to shoulder any exploration risk, and he's not going to get into the business of acquiring the actual seismic or petrophysical data. But moving back to more of a product focus? That remains to be seen.
"In today's environment people prefer to receive knowledge in the form of services rather than only in products," he said. "But that could change in the future. This is the way business is. We want to be knowledge providers and focus our expertise in that area, not move into other people's domain. I trust that our customers will appreciate our focused approach."

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