I’ve sat through a few
presentations by investment bankers recently on what it takes to go public
(most recently at VC in the Rockies - see my
post about the conference here). I
thought I’d throw out some of my notes so you could see what I'm
being told it takes to get public in the current market. The VCIR panel I sat through included some
thoughts on the state of the m&a market, so I’ll include those notes as
well.
Company ‘Requirements’:
- Revenue: ‘Bigger
the better’; minimum of $60m/year annualized (so $15m/quarter at the time of
the IPO; however 60% of 04’ IPO’s were < $100m in revenue (up from only 30%
in the depths of the market); this has been a very consistent metric across all
of the bankers I’ve talked with.
- Profitability: Companies should be at or near
profitability prior to IPO; there was some debate across the people I talked
with about whether this was a requirement – some people thought companies
absolutely needed to be profitable, others gave a little bit (but not much) of
wiggle room.
- Funding Needs: Company needs to be fully funded –
the money raised in the IPO should be expansion capital, not core operating
(get to profitability) capital
- Team/Execution: Company probably needs to have been
around for 4+ years; management teams are coming under much closer scrutiny by
investors (was not the case in the bubble)
M&A Trends:
- Cash deals are at an almost all-time high
(presumably driven by both low interest rates and acquiring companies belief
that their stock was undervalued and therefore equity was too expensive; in
addition, a lot of active acquirers in the tech space especially have large
cash reserves)
- Hostile deals are also at an all-time high (drive
by cash availability as well as companies feeling that some targets are ripe
for the picking with their depressed stock prices)
- The IPO alternative is seen as a credible threat
(the banker who presented at VCIR estimated that 2/3rds of m&a deals are
now dual tracked – this number struck me as high, but even if the real number
is ½ of that it’s still an impressive figure).
UPDATE TO ORIGINAL POST
ThinkEquity Partners has sarted a blog - an excellent development for those of us who are excited about the potential of corporate blogging - and just posted their thoughts on the IPO market this year. You can check it out at: http://www.thinkequity.com/mt-archive/2005/02/ipo_dashboard_f.html