What it takes to go public
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).
The overall feeling I get is that the IPO market is certainly available to quality companies, but that the scrutiny companies go through to get out is real. While the markets basically shut down for the sectors that I work in during 01’ and 02’ they’ve clearly come back since then (as have the m&a markets, which is the more likely exit for many of the companies that I work with). We’ll have to see what 2005 brings – 2004 saw 54 IPOs of tech companies – lets hope we’re on track to best that 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