2009 – A desert for VC backed IPOs?
As 2008 ends, two different points about the IPO market in 2009 struck me as noteworthy. Both of these appeared as I began to catch up on my reading from a hectic December.
The first arrived late last week in an article I read on SFGate's Tech Chronicles in "Slim picken's for IPOs could yield investor bargins" that quoted Renaissance Capital (an independent research service) with their outlook for the kind of companies that might access the public markets in 2009:
"Looking ahead, Renaissance said the companies lined up to go public in 2009 will have average revenues of $535 million…"
This is consistent with the discussions I've had over the last few months with some of the (remaining!) investment bankers. Public market investors want a growth story but they don't want to take a risk – revenue at the $500M mark, solid growth (>20% per year) and consistent profitability are going to be the hall marks of companies that can successfully IPO once the window re-opens. Renaissance also projects 100 IPOs in 2009 – it will be great to see that number achieved!
The second data point arrived in an email from the Silicon Valley office of the New York Stock Exchange announcing that the NYSE had approved an additional listing standard for emerging growth companies:
"On November 12, 2008, the SEC approved an additional initial listing standard that we put in place to encourage emerging growth companies to list directly on the NYSE. The following minimum listing requirements are all pro-forma for an associated offering / IPO:
- $150mm market capitalization
- $75mm total assets
- $50mm shareholders equity
- $60mm public float for IPOs, or $100mm public float for transfers
- $4 stock price
- 400 round lot holders"
It's great to see the NYSE make this move but I don't see a $150M market cap company getting much interest – this is almost micro-cap territory these days and isn't going to be very popular with public investors recovering from the worst beating they've had in many decades.
2009 looks like a year to consider mergers that help private companies consolidate a market segment and bulk up on revenue and profitability. Private to private mergers are challenging to say the least but with execution attention to a solid merger plan (and agreement between different investor syndicates), the rewards may finally outweigh the risks.
In any event, 2009 has the makings of a desert for VC backed companies to IPO – there are certainly some VC backed companies that meet the Renaissance Capital profile but not many. The majority of exits in 2009 are going to be via M&A – only time will tell if shareholders will be happy about the valuations!