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Parallels Nears IPO While Advancing in $40 Billion Cloud Market

Parallels Inc., a U.S. software developer seeking growth in cloud-computing services, is nearing an initial public offering after selling a stake to Cisco Systems Inc. (CSCO) this year, Chairman Serguei Beloussov said.

“While an IPO definitely won’t be in the first half of this year, it may happen sometime later, depending on market conditions,” Beloussov, Parallels’ co-founder, said in an interview in Moscow. The company may use proceeds to expand in the growing market for cloud services, he said.

Parallels, based in Renton, Washington, and with programmers in Russia, supplies Web hosters and telecommunications operators with a standardized platform to provide cloud services to small and medium-sized businesses. Its clients include Sprint Nextel Corp. (S), America Movil SAB (AMX), Telenor ASA (TEL), CenturyLink Inc. (CTL) and Rackspace Hosting Inc. (RAX)

Businesses are shifting toward accessing information technologies remotely via the Internet, or “the cloud,” reducing the need for hardware on their premises. Cloud services exceeded $40 billion last year and are set to approach $100 billion in 2016, according to market researcher IDC.

“This market is growing as there are roughly 1 billion people globally employed in small business, which may boost productivity by using information technologies,” said Russian-born Beloussov, who now holds Singaporean citizenship. “A business with 10 employees can’t afford to hire a systems administrator, while it can use applications from the cloud.”

Rapid Growth

Parallels had $100 million in revenue in 2009 and has been growing “very rapidly” since then, Beloussov said, declining to disclose recent figures. In a report in February last year, IDC said the company had more than 5,000 customers and partners, which could ultimately reach into 12 million small and medium-sized businesses worldwide, directly or through resellers.

“Parallels is definitely on the upswing these days,” Melanie Posey, research vice president at IDC, said by e-mail March 19. “They’ve picked up big technology partners such as IBM and Cisco, which is helping Parallels get into bigger deals, particularly with telcos.”

Parallels, founded by Beloussov and his partner Ilya Zubarev 13 years ago, attracted venture financing in 2005 and 2009. Its investors include Intel Capital and Bessemer Venture Partners. In January, Cisco acquired a stake of about 1 percent in Parallels.

Acquisition Strategy

“Our biggest competitors are in-house developers of cloud service providers,” Beloussov said. “This was the case with enterprise-resource planning systems earlier: Everyone was trying to develop an ERP for himself until SAP AG came and offered a standardized solution, displacing all these in-house projects.”

Parallels has acquired 12 software makers since 2003, including U.S.-Russian company Plesk Inc. and German business Yippi-Yeah E-Business GmbH with its Confixx software. Parallels sees a dozen more development teams it can buy to speed its progress and consolidate the market, Beloussov said.

“The Wall Street bankers have been talking to us since 2006, viewing us as a peer of VMware Inc. (VMW),” Beloussov said. “In reality, we are different: VMware supplies large corporates with cloud platform for in-house use, while our software enables telecom operators and hosters to offer services for small business.”

Beloussov declined to name the banks that Parallels is working with. Alexander Galitsky, a partner at Almaz Capital, which holds a stake in Parallels, also declined to comment on revenue or banks that could potentially manage the share sale.

Parallels employs more than 900 people in 16 countries, more than half of whom are Russian engineers. Parallels Chief Executive Officer Birger Steen and Chief Technical Officer Michael Toutonghi come from Microsoft Corp. (MSFT) Jim Herman, head of worldwide sales, worked for 11 years at Symantec Corp. (SYMC) Bertrand Serlet, who used to work at Apple Inc. (AAPL), where he led development of the Mac OS X system, serves on Parallels board of directors.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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