Quite a few years ago the Faultline team used to run a service called M&A Impact, and among some of its core statistics were the number of IPOs which had occurred, and their value, which had a major effect on pricing for Mergers and Acquisitions. You couldn’t have earned a crust continuing with that after the Dotcom bust in 2002, as mergers happened only out of desperation for a while there, and IPOs dried up completely.
But today PricewaterhouseCoopers has begun some form of IPO watch again and the US National Venture Capital Association is taking about more mergers, funding rounds and IPOs in its annual survey ‘ both out this week. The PwC report results are a serious indicator for investment everywhere. There is a simple logic to this – when there are more financial exits available and they are easier to find, there is more money offered in VC funding. It’s a fact of life that money chases money and any venture capitalist who can see the IPO market recovery arriving, will invest a year or two before, so that after a three to five year investment, it has choices about how to exit.
Which is one of the reasons that venture backing has somewhat loosened up during the past year or so, and that companies are managing to get away their investment rounds. We have seen this happening more and more in technology, including the technologies in the video and pay TV space, but mostly when a business has the world ‘web’ in its product description.
The NVCA tells us that half of all M&A deals in first quarter signed in the US were internet deals and this generated 38% of all exist monies for the company owners.
On the IPO side of the equation PwC says that IPO proceeds for the first quarter of 2011 reached $12.4 billion, the highest Q1 proceeds since 2008, but if you take out one massive IPO, the one for Visa in 2008 valued at $17.8 billion, then 2011 was the biggest starting quarter to a year since 2000. Most people in investment don’t look back past 2000, and often not past 2002. 2000 was a year of massive VC investment and IPOs and M&As, and 2002 was the year the bubble burst and many of these companies went bust.
PwC reckons that the increase is some 194% over this time last year and the reason for this is that the major financial organizations are over their toxic debt induced headache, which brought on the credit crisis, and are back to business as usual.
“This is one of the best first quarters we’ve seen in years, demonstrating the increasing attractiveness of the US IPO markets for generating capital and providing liquidity for financial sponsors,” said Henri Leveque, partner and leader of PwC’s accounting advisory practice.
“Based on the first quarter results and insights into the deal pipeline, we are optimistic that the momentum will continue for the remainder of the year and potential issuers will look to capitalize on the rebounding IPO market.”
The NVCA also says there is a bright future in prospect after the massive weakness of late 2008 and all of 2009, with 2010 activity right on track to see the M&A and IPO markets heating up this year and next. Its survey says that most VC firms expect increased funding in 2011, particularly with later stage investments with the 2010 spending mostly on seed capital and some of that still available.
PwC puts the US IPO market on pace to go way past the 2010 proceeds of $39 billion. The month of February alone brought 17 IPOs raising $4.1 billion ‘ close to the total amount of proceeds raised during the entire first quarter of 2010.
Now the entire private equity community will be circling like sharks to get the public markets to take some of their long suffering investments off their hands. PwC said that it saw a record number of buyouts from 2005 to 2007, and it is many of these companies looking to get rid of mounting debt burdens that will look to go public. PwC says there are a total of 52 companies which entered the IPO registration process in the first quarter, adding to the robust IPO pipeline.