Update at 10:08 a.m. PDT, with additional statistics on IPO market.
U.S. venture-backed companies failed to launch a single initial public offering in the second quarter of 2008, a dire situation not seen since early 2003, according to the Quarterly U.S. Liquidity Report released Tuesday by Dow Jones VentureSource.
That's nada, zero, zilch.
And the mergers and acquisitions market for U.S. venture-backed companies did not fare much better in the second quarter, dropping 42 percent in the number of deals completed compared with the same time last year.
In the second quarter, 56 transactions generated $4.7 billion, compared with 97 deals raising $8.8 billion a year ago. According to the report, the number of deals completed in the second quarter of this year has not been this low for at least 10 years.
Overall, the combined effect of no IPOs and a substantial drop in M&A activity in the second quarter has resulted in a 47 percent drop in money raised through the sale or IPO of a U.S. venture-backed company.
"The broader pullback in the economy is affecting corporate spending and is clearly impacting the M&A market," Jessica Canning, global research director for Dow Jones VentureSource, said in a statement. "Corporations might be out looking for venture-backed companies to acquire, but many are either doing so quietly or choosing to hold off on entering into negotiations."
Since March, for example, 10 companies have yanked their IPO registrations. Currently, 22 companies still are registered to launch an IPO, but are waiting for the markets to improve before going out, Canning said.
This recent IPO drought is the second longest running session since 1992, with no IPOs for 103 days. The longest running session was 145 days that began back in Dec. 18, 2002, and continued through May 12, 2003.
Despite the recent malaise in the market, the amount of liquidity offered up to venture investors has shown some improvements over the past few years. Since 2005, the number of IPOs has steadily risen on an annual comparison basis, while the amount of funds raised via acquisitions has increased on a year-over-year comparison since 2002. And in the past two years, IPOs have historically had a strong showing in the fourth quarter, Canning noted.
Information technology mergers accounted for 73 percent of the number of completed deals in the quarter, with 41 transactions generating $3.3 billion. Time Warner's $850 million acquisition of social-networking site Bebo.com was the largest deal of the quarter. But IT deals overall declined 29 percent from the same time last year.
"We're at the mercy of the market right now," Canning said. "Unfortunately, we're just going to have to wait and see if the liquidity markets recover in the second half of the year."
Yandex, a Russian search engine, plans to raise $1.5 billion to $2 billion in an initial public offering this fall, Reuters reported Tuesday.
The funding is based on an overall valuation of about $5 billion, according to an unnamed source. Reuters also cited Russian media reports that Morgan Stanley, Deutsche Bank, and Renaissance Capital are managing the IPO on Nasdaq.
Yandex has about 8 million unique users per day, the company said. Its co-founders are Chief Executive Arkady Volozh and Chief Technology Officer Ilya Segalovich. The company's technology began as a linguistics project at the Russian Academy of Sciences project to build a search system for the Soviet government.
The Yandex.ru Web site was launched in 1997, and the company now has become a portal site with photo sharing, social networking, an online payment system, free Web site hosting, and other features.
Google lags Yandex in Russian search. However, Google co-founder Sergey Brin said in an interview that the company thinks it's improved its search technology to better deal with the Russian language.
Wind energy company Noble Environmental Power has filed to raise as much as $375 million in an initial public offering, according to a document with the Securities and Exchange Commission that was filed Thursday.
The Connecticut-based company, which plans to list its shares with the Nasdaq under the symbol "NEPI," operates in the booming wind power market. But the company will still have to brave a weak IPO market.
The 4-year-old Noble runs wind parks in New York state that generate about 282 megawatts of electricity; and later this year, it plans to open added parks in New York, Vermont, New Hampshire, Minnesota, Maine, and Texas. Noble is seeing demand for wind power in the Northeast partly because of renewable energy mandates in the area. But the wind-power industry is hampered by a shortage of wind turbines.
Noble plans to use the money from the IPO to develop its business, invest in new technologies, and ink future turbine supply agreements. Lehman Brothers, JPMorgan Securities, and Credit Suisse Securities, are underwriting the IPO.
Updated March 22, 2008. Edits explained at the end of the post. - ST
I was reading a news item about the resignation of Mathstar's chief financial officer. I was surprised to see a publicly traded semiconductor company I'd never heard of, so I checked it out.
Turns out that Mathstar is like a number of companies I've come across over the years: they come in under the radar screen and, as such, investors think they've found something special.
Sure, these companies are special, but not in a good way.
(Credit:
Mathstar)
Mathstar markets itself as a development-stage fabless semiconductor company. Its products are called field-programmable object arrays, or FPOAs, and are targeted at high-performance, data-intensive applications like defense, security, medical imaging, and video.
Sounds good, right? ... Read more
Kudos to ArcSight for having the chutzpah to go public rather than wait around to get acquired. What does the company's IPO mean to the market? Three things.
1. The space is on fire. ArcSight revenue was up about 75 percent year over year--from just under $40 million to just under $70 million. A testament to ArcSight? Absolutely, but the whole log management space (along with its security and compliance analysis aspects) are as hot as can be. ArcSight is one of the boats in this rising tide.
2. ArcSight makes the short list. Yes, the competition is steep. Look for IBM to really jump into this market with both feet in 2008, along with HP and partner SenSage. Nevertheless, ArcSight has established itself as a market leader, and its IPO bolsters this position with financial transparency. ArcSight should get into every enterprise bake-off.
3. The next battle is down market. OK, so ArcSight will fight with EMC, HP, and IBM in the enterprise, but who will win in the globally rich SMB space? This market will be dominated by turnkey appliances and managed services. ArcSight may want to use some of the $51 million it garnered through its IPO to build products and channels for the mid-market.
Entrepreneurs got some answers Thursday from investment bankers and institutional investors during the AlwaysOn Venture Summit in Half Moon Bay, Calif.
For starters, companies looking to cash in via an IPO, or acquisition, are finding that it's usually through the acquisition route, said Paul Deninger, vice chairman of Jefferies & Co.
Over the past five years, mergers and acquisitions have provided 80 to 90 percent of all equity returned to investors of venture-backed technology companies, compared with 30 to 40 percent in the early 1990s, he noted.
And that trend concerns Deninger, who compared the situation to venture capitalists "eating their young."
"The venture (capital) industry is headed into a wall. All the best companies are being sold," Deninger said. "For seven straight years, the number of companies going public has declined. That means the number of (prospective) buyers is also declining. Eventually, the VCs will have fewer companies that they can sell their companies to."
Companies that are hot IPO material and have breakthrough technology are likely to see Glen Kacher, Integral Capital Partners managing director, in attack mode.
"The deals we are most excited about are deals that will change the industry," Kacher said, noting he will aggressively pursue an investment in these companies prior to their IPO pricing.
Start-ups that fail to attract strong investor interest are not totally out of luck, institutional investors said. In fact, Paul Wick, managing director of J. & W. Seligman & Co., is one who will scope out "cold" IPOs, seeking to snap up the shares at a discount to the IPO pricing range.
That discount, at times, can be in the 10 to 15 percent range for investors in a "cold" IPO, said Leslie Pfrang, managing director of Deutsche Bank Securities. And in those situations, Pfrang will "lock arms" with a smaller core of investors, who Deutsche Bank Securities has a greater familiarity with, she said.
Pfrang, along with other panelists, offered some practical advice to entrepreneurs before they shoot off their mouths on a road show to attract investors.
"Our advice to management is keep your presentations short and let them ask you a lot of questions, be conservative on your models, and don't be overly promotional," Pfrang said. "Tell them about your potential and opportunity and don't disparage the competition."
Indeed. Trying to do a snow job on potential investors by claiming there are "no competitors" is likely to leave entrepreneurs with no money, panelists noted.
"The arrogance factor has got to go," Kacher said, noting he often hears from entrepreneurs that they have such a unique company that there are no competitors, but a quick look at the company's prospectus tells him otherwise.
And be prepared for the pointed questions during the road show, noted John Rende, portfolio manager with Weintraub Capital Management. One chief executive who was queried by Rende may have wished he had.
As part of his due diligence on the company, Rende learned through a simple Internet search that the chief executive was facing a massive lawsuit stemming from a marriage to spouse No. 5, while still married to spouse No. 4.
"Toward the end of the road show, I asked this person if the lawsuit would be a distraction for them," Rende recalled. "This person became defensive and the meeting ended at that point. I wanted to see how this person would respond to deep questioning. The wrong response is not shaking your hand when the meeting is over."
SAN FRANCISCO--If you listened carefully, Wall Street issued a collective groan late today. That's when Facebook's CEO very publicly doused speculation about an imminent initial public offering.
"I'm not saying it's never going to happen," said Mark Zuckerberg. "But it's definitely years out."
Zuckerberg made his comments while speaking with John Battelle to lead off the Web 2.0. Summit which got underway here today.
What with all the hype and frenzy surrounding Facebook, Zuckerberg not surprisingly attracted a spillover audience crowding into the main ballroom of this city's Palace Hotel, an elegant throwback which opened its doors in 1875 (which wasn't all that long after the California Gold Rush ended.)
As co-host of the three-day event, Battelle tried--with some success--to draw Zuckerberg out of his shell during the course of an hour question-and-answer session. But when it came to getting Facebook's founder to comment on the rumors about either a forthcoming sale or IPO, Battelle took a called strike three.
"Well, you have years before that event," Zuckerberg said.
Investors in VMware's initial public offering got a rocket ride Tuesday morning, as the highly anticipated IPO launched out of the gate with an initial trade of $52 a share.
VMware investors who
Not bad, noted
"VMware is poised to be the No. 1 first-day gainer for the year," Peterson said. "And although it was anticipated to be well-received, it came out on a day when the overall markets are down by 150 points, making its debut all the more impressive."
VMware joins 43 other tech IPOs that have debuted this year, which are part of the overall group of 142 deals that have gone out to date. Fortress Investment, a financial services company, gained 67 percent at the close of its first day of trading and VMware appears on track to beat the figure.
VMware, which develops virtualization software for servers, has grabbed investors attention for several reasons. One, the company's IPO comes at a time when virtualization is playing a greater role in the computing world. VMware's software, for example, is designed to allow a single server to run a number of operating systems simultaneously on different "virtual machines." And two, it was an established operation that was spun out of storage titan EMC, which had
VMware's software aims to put this virtualization technology on lower-priced servers, rather than leaving it for the more expensive mainframe computers and older Unix servers.
VMware, which sold 33 million shares to the public and raised $975 million, currently has a market value of $19.5 billion based on its first trade of the day.
Looks like EMC got its money worth, before setting the company free.
VMware said late Monday that its stock offering is ready to go forward, with shares priced at $29 per share. The virtualization software specialist will begin trading on Tuesday on the New York Stock Exchange under the symbol "VMW."
VMware had been an independent company until storage giant EMC announced a $635 million acquisition of the software maker in December 2003. In February of this year, EMC said it would sell a stake in the company through a public offering. The stock offering comes as virtualization is taking on an increasingly central role in the computing world.
Social networking's current hottie, Facebook, might be considered a pretty sexy acquisition target (to put it lightly) for new media's biggest players. But if an intriguing job posting on Facebook's site is to be believed, the service may be headed for an initial public offering instead.
The job listing, which was dug up by Valleywag on Monday, reveals that the company is seeking a "Stock Administration Manager" to work in its main office in Palo Alto, Calif. The job description also asks for "proficiency in stock option administration applications," a minimum of four years "stock administration experience in an international public company, preferably a technology company," and--naturally--knowledge of the post-Enron Sarbanes-Oxley regulations.
Sounds pretty public to us, but you can never be entirely sure. If true, this would be unprecedented in the social networking realm, as its major players have either remained independent for now (like LinkedIn or Bebo) or been acquired by major media companies looking to bolster their social media offerings (like News Corp.'s famous purchase of MySpace in 2005).
UPDATE: A Facebook representative has responded to our requests for comment. Apparently, this does not indicate an IPO is on the way. "Facebook grants stock options to its full-time employees," the company rep said in an e-mail. "The company is looking to hire a few hundred people this year and we need someone dedicated to administering the grant process."
