Interesting article from the Mercury News discussing some of the challenges companies face post-IPO. Here's the link: http://www.mercurynews.com/business/ci_19327698
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The Wall Street Journal reports today that the SEC has approved new rules for "reverse merger" listings. Reverse merger listings are a way for foreign companies to obtain a listing on a US exchange without going through the registration process with the SEC. Foreign companies merge with publicly-traded shell companies to effect the reverse merger listing. The problem is that the merger process has allowed foreign companies without strong accounting controls to become publicly traded in the US. Here's the link to the WSJ story: http://professional.wsj.com/article/SB10001424052970204358004577028381460208046.html
The new rules make it tougher for foreign companies to list via reverse mergers. I applaud this move. Yelp Inc. has selected Goldman Sachs and Citigroup to lead its initial public offering, according to The Wall Street Journal. Here's the link: http://online.wsj.com/article/SB10001424052970204190704577026140347386380.html?mod=WSJ_Tech_RightMostPopular
According the article, indications are that the IPO could value the company between $1 billion and $2 billion. Investors in Yelp include Benchmark Capital, Bessemer Venture Partners, Duff Ackerman & Goodrich and Elevation Partners, according to Dow Jones VentureSource. There are a number of recent articles suggesting the IPO market is thawing.
The first is from CNBC, entitled "IPO Market Shows Signs of Life." The article quotes Renaissance Capital as saying that there are over 209 companies in the IPO pipeline looking to raise nearly $50 billion. Link is here: http://www.cnbc.com/id/45196527?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo The next article, from Seeking Alpha, is "The IPO Buzz: Stepping on the Accelerator." This article takes a look at the IPOs expected this week. Link: http://seekingalpha.com/article/305986-the-ipo-buzz-stepping-on-the-accelerator?source=yahoo Finally, a Bloomberg article "Zynga Said to Plan IPO After Thanksgiving" basically says everything in the title. Link: http://www.bloomberg.com/news/2011-11-07/zynga-said-to-plan-ipo-after-thanksgiving.html Here's a link to an article on the Groupon IPO and its implications for other venture-backed companies looking to go public: http://online.wsj.com/article/SB10001424052970203716204577017773545604142.html?mod=WSJ_Tech_LEADTop
The gist of the article is that the IPO will, unsurprisingly, be good for other IPO candidates. One such candidate is Angie's List, which is the subject of an article by Dan Primack of Fortune. Mr. Primack indicates that Angie's list could go public as early as the week of Nov. 14. Here's the link: http://finance.fortune.cnn.com/2011/11/04/internet-ipo-land-angies-list-is-next/ In "How to do a successful IPO," Patricia Sellers interviews Lise Buyer (former CSFB technology analyst and Founding Principal of Class V Group) for tips on conducting a successful IPO. Here's the link: http://postcards.blogs.fortune.cnn.com/2011/11/03/how-to-successful-ipo/?iid=SF_F_River
Ms. Buyer outlines the following tips (I'm paraphrasing):
All in all, I feel this is a very helpful article for any company considering an IPO. Groupon priced its IPO last night at $20 per share, above the indicated range of $16 to $18 per share. In addition, the company sold an extra five million shares for a total of 35 million shares for a total offering of $700 million. The fact that the IPO priced above the range and with additional shares indicates that there was significant demand for the IPO.
At the opening, Groupon shares sold at $28 per share, a 40% increase over the IPO price. The stock price peaked at $31.14 early, then dropped down to under $26 but is now trading at just under $29 (at 1:25 pm EDT). In my view, the Groupon IPO is very welcomed. I'm hopeful that the stock price continues to perform well throughout the day and going forward, as it would be very good news for the IPO market overall, and especially for venture-backed companies waiting to go public. Venture Capital investors in Groupon include Accel Partners, Andreessen Horowitz, Battery Ventures, Greylock Partners, Kleiner Perkins Caufield & Byers, Maveron, New Enterprise Associates, Silver Lake Partners and Technology Crossover Ventures (TCV). Here are a couple links to stories about the Groupon IPO: WSJ (subscription firewall): http://online.wsj.com/article/SB10001424052970203716204577017773545604142.html?mod=googlenews_wsj MarketWatch: http://www.marketwatch.com/story/groupon-soars-in-ipo-defying-skeptics-2011-11-04 Groupon Inc. is expected to price its highly-anticipated IPO today for trading tomorrow, according the The Wall Street Journal, Here's the link (subscription firewall): http://online.wsj.com/article/SB10001424052970203716204577016001857985424.html?mod=WSJ_hp_LEFTWhatsNewsCollection. According to the article, the company may price its IPO slightly higher than the indicated price range of $16 to $18 per share.
Bloomberg Businessweek had an interesting article on Groupon that suggests Groupon really needs to price its IPO given its current cash position, monies owed to merchants and current cash flow position. Here's the link: http://www.businessweek.com/news/2011-11-03/groupon-ipo-a-must-as-cash-needs-climb-with-investor-tally-tech.html The Wall Street Journal reports today that investor appetite for Groupon's IPO is strong and that people close to the IPO speculate that the IPO price range may even be raised. Here's the link (behind subscription firewall): http://online.wsj.com/article/SB10001424052970204505304577004240932059400.html?mod=WSJ_Tech_INTL_LSMODULE
Henry Blodget of Business Insider has a very interesting article analyzing the IPO valuation of Groupon. Here's the link: http://www.businessinsider.com/how-much-is-groupon-worth-2011-10?op=1. I think this is article serves as a very good basis for discussion of IPO valuation. I also agree with his statement:
"So don't believe anyone who tells you they know what Groupon's worth. They don't. All they know is what their estimate is of what Groupon is worth. And, unfortunately, the range of "reasonable" estimates of what Groupon (or any stock) is worth is wide enough to fly a 787 through." Valuation is a very subjective analysis and is a little bit art and a little bit science. We won't know Groupon's IPO valuation until it actually prices. Two articles from Reuters on the Groupon IPO.
The first article focuses on Groupon's 4,800-strong salesforce and CEO Andrew Mason's statement that he plans to replace the bottom 10% of the salesforce. The link is here: http://www.reuters.com/article/2011/10/26/groupon-salesstaffcuts-idUSN1E79P0YQ20111026. In my view, replacing poor performing salespeople only makes sense, but it's unclear to me whether this is a new policy or an existing policy that's being highlighted. The second, and more interesting article in my view, focuses on competition in the daily deals space and barriers to entry. Here's the link: http://www.reuters.com/article/2011/10/26/markets-stocks-ipos-idUSN1E79P2DZ20111026. My view is that three is significant competition in the space and very low barriers to entry. The combination of these factors could lead to margin compression. In my experience, this is similar to a distribution business model, and even though margins may be strong now, over the long term, margins may be pressured. On the other hand, in the near term, Groupon has created a recognizable brand and an overwhelming market presence. This suggests to me that in the near term, the business model may be fine, but in the longer term may come under pressure. According to the second article, the IPO should price on Nov. 4. I'm curious to see how it prices and trades in the aftermarket. A recent post by Gregory Roth on PEHub.com indicates that Carlyle is in no hurry to go public. Here's the link: http://www.pehub.com/123747/breaking-carlyle-co-founder-says-firm-may-stay-private/.
KKR, Apollo and Blackstone have all gone public. Blackstone has been public since 2007, KKR since 2010 and Apollo since earlier this year. The stock prices for all three are down significantly from the April time frame. Given the current volatility in the market and the drop in valuations of its peers, Carlyle's strategy seems sound to me. Groupon has amended its S-1 with a pricing range of $16 - $18 per share, link to SEC website here:
http://www.sec.gov/Archives/edgar/data/1490281/000104746911008605/a2205238zs-1a.htm Bloomberg Businessweek has a good analysis of the pricing and valuation here: http://www.businessweek.com/ap/financialnews/D9QGLA6O0.htm See the Groupon IPO roadshow presentation here: http://www.retailroadshow.com/sys/launch.asp?qv=7519056762608856&k=61094248141 And see a tongue in cheek, slide by slide commentary of the IPO roadshow here: http://jackp27.blogspot.com/ A critical look at Groupon's revenue growth: http://blog.yipit.com/2011/10/21/the-chart-that-will-scare-away-many-groupon-investors/ A report was released today by the IPO Task Force with recommendations on how to revitalize the IPO market in the US. The report, slides and press release can be found at the NVCA's website, www.nvca.org. Basically, there are four recommendations:
In general, I applaud this report. Most of the recommendations are well-reasoned and welcomed. However, in my opinion, there are a couple of recommendations with which I respectfully disagree. First, the report recommends easing the financial statement disclosure requirements in the IPO registration materials. In my prior experience as an investment banker, these regulations didn't hinder the IPO process in the past, and these financial disclosures provide useful financial information to investors. Second, the report proposes to make the initial S-1 filing confidential, similar to the treatment that foreign issuers are afforded. In my experience, having an S-1 be a public document never served as a disincentive or hindrance to going public. My thinking is that this provision is to enable the US IPO market to have a more even playing field with international markets, but again, in my experience this hasn't been a problem in the past. All in all, I believe this is an excellent report and should be strongly considered by policy makers. The Wall Street Journal today reported that Groupon is moving forward with its IPO, albeit at a reduced valuation to what had been previously expected. Here's the link (behind firewall): http://online.wsj.com/article/SB10001424052970204618704576641500783767700.html?KEYWORDS=groupon
Based upon my prior posts about IPOs, the reduced valuation comes as no surprise to me, for a few reasons. First, the stock market has been volatile lately, which typically has a negative impact on valuations. Second, Groupon has had a couple well-publicized problems with the SEC - the restatement of revenue, the controversy over its unique accounting metric, and the leaked employee memo - which have generated negative press. Third, the company's business model has also been under scrutiny. It will be interesting to watch how the IPO does... My firm, Campton Private Equity Advisors, tracks US venture-backed IPOs listing on US exchanges and prepares a quarterly report which is distributed to venture capitalists. In the third quarter of 2011, there were only five venture-backed IPOs of US companies on US exchanges, with four of these occurring in July and one occurring in August. There were no venture-backed IPOs in September. I believe that the IPO window shut due to increased volatility in the stock market (VIX went from under 20 in July to over 40 in September) and concerns over the global economy.
I'm hopeful that the IPO window will open again soon. There are many interesting companies that have filed for their IPOs, and several will be ready to go public as soon as market conditions warrant. If you are a venture capitalist and would like to request a copy of our most recent report, please contact Campton Private Equity Advisors at info@camptongroup.com. An article by Dawn Kamamoto entitled "5 Warning Signs for IPOs" appeared yesterday on The Motley Fool website. Here's the link: http://www.fool.com/investing/general/2011/10/14/5-warning-signs-for-ipos.aspx. In this article, the author lists 5 warning signs that there may be issues for an upcoming IPO:
The website IPO Dashboards contains an analysis of the IPOs in 2011 through 30 September and finds that technology IPOs have performed the worst of any sector. Here's the link:
http://www.ipo-dashboards.com/wordpress/2011/10/who-is-the-markets-worst-performer/ I have a couple of thoughts on this analysis. First, it appears that the data includes all IPOs on US exchanges, including foreign issuers. In my experience, foreign issuers can sometimes have greater stock price volatility as their financial and operating data is often more opaque than US issuers. In addition, the technology-sector IPOs don't include Zillow, which is one of the better performing IPOs of the year. Zillow is included in the Real Estate section. However, in my view, Zillow is more of a technology company than a real estate company. Finally, the worst performing tech IPO is Friend Finder Network, which is the parent company for Penthouse magazine and a number of adult-themed websites. Friend Finder Network has been trying to go public for several years, has significant debt, and has received lots of negative press. In my view, Friend Finder Network is not really a technology company and it doesn't surprise me that its stock hasn't performed well since its IPO. While technology IPOs are certainly risky, it would be interesting to see the data reworked to exclude the foreign issuers, include Zillow, and exclude Friend Finder Network. The results might be very different. |
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