Stephen’s Posterous

According to The Wall Street Journal, the number of companies filing IPO's has increased as the number of scrapped deals decreasing.

OpenTable, the San Francisco company, on May 6, 2009, revealed plans to sell three million shares between $12 and $14 a share as reported by the Wall Street Journal. There have been four IPOs this year.

This sets the value of the company at about $260 million. The company is selling about 15% of the company with half of the sellers being current investors. The company will raise about $16 million in cash.

The Wall Street Journal said in the article that the OpenTable IPO may face some challenges based on its prospectus as its financial results are not as impressive as those produced by other companies that have had an IPO this year like Changyou.com Ltd. and Rosetta Stone.

OpenTable only started becoming profitable last year, its fifth year in operation. It made $366,000, and lost $87,000 the previous year. Since opening in 1998, it has taken reservations for about 90 million diners and has a network of 10,000 restaurants.

Given that the restaurant business has had challenging times, it's interesting that OpenTable would choose to debut at this time. On another note, it is a convenience to be be able to make reservations online as opposed to making telephone calls to various restaurants.

Bank of America Merrill Lynch is handling the offering. OpenTable will trade under the symbol OPEN. Read the full SEC filing.

Nasdaq OMX Steps Up IPO Efforts by Jacob Bunge, WSJ Blogs

Nasdaq OMX Group Inc. is intensifying its efforts to secure new initial public offering business rather than luring companies from other markets. The strategic switch comes amid a three-way battle with NYSE Euronext and TMX Group Inc. in a listings market starting to show some signs of life.

“We’re continuing to be very hopeful that we’ll start to have some of our backlog actually come to market,” said Bob McCooey, Nasdaq’s head of new listings and capital markets,” said Bob McCooey, Nasdaq’s head of new listings and capital markets.

That would be a grand relief for venture capital investors, which have desperately sought ways to jumpstart the new-offerings markets. No venture-backed company has gone public since Aug. 8, 2008, and that offering, Rackspace Holdings Inc., was the only such IPO in the past 12 months. IPOs remain the best source of investment returns for venture capital firms.

McCooey is preparing a tour of prospective listees on the West Coast, the center of U.S. float activity during the technology boom. Nasdaq’s move follows the recent success of two new listings on rival New York Stock Exchange, doubling the tally seen in the U.S. over the previous two quarters. 

Nasdaq and NYSE have been engaged in a fierce and often testy battle over listings switches, but Scott Cutler, NYSE Euronext’s head of listings in the Americas, said the exchange company hadn’t intensified its efforts to lure companies from its rival when the IPO pipeline ran low.

“We’re investing in this business for the long cycle, and we continued to invest even in the financial crisis,” Cutler said. NYSE has held “IPO boot camps” for companies considering a public float, and Cutler said two technology-related IPOs will come to NYSE Euronext in May.

“We’ve been working with the private equity and venture capital community on what we can do to improve the market when it returns,” said Cutler.

U.S. IPO activity has ticked up in April. Language software company Rosetta Stone Inc.’s shares climbed 40% after its public debut on NYSE Euronext last week, the best-performing IPO in 12 months.

This month also brought offerings from Bridgepoint Education Inc., an online college that also made its debut last week on NYSE Euronext, and Changyou.com Ltd., a video game company that listed on Nasdaq in early April.

Nasdaq OMX’s McCooey said he’s “cautiously optimistic” about IPO prospects for the remainder of the year, and sees the market gaining strength in 2010.

Source.

Rosetta Opens Door for Select Stocks by Lynn Cowan, WSJ.com

The strong debut of Rosetta Stone last week likely heralds a turning point for the IPO market in the U.S. with some caveats.

"The atmosphere is more positive now than just a couple weeks ago about the prospects" for more initial public offerings, says Scott Cutler, head of the listings department in the Americas at NYSE Euronext, parent of the New York Stock Exchange, which listed the Rosetta Stone IPO. "I think we'll look back on this week several months from now and say these were good data points that really helped lay a foundation."

Rosetta Stone, a language-software company, rose nearly 40% April 16, 2009. It is the latest in a four-deal winning streak in 2009 and the best performer in 12 months. Its reception by investors eclipsed a more subdued reaction April 15, to online college Bridgepoint Education, which rose 6% on the NYSE after reducing its selling price.

Both Rosetta and Bridgepoint continued making gains after their debuts, closing Friday up 57% and 14% from their IPO prices, respectively.

Bankers and analysts say Rosetta Stone's deal won't create a deluge of new IPOs on the U.S. market but will instead pave the way for select new stocks that meet certain requirements: those that are in defensive sectors and with unusually high revenue and profit growth.

"Consumer staples, health care, education" are some sectors that could see a pickup in filings and pricings, says Morningstar equity analyst Bill Buhr. "Let's say maybe that May duplicates April. I don't think we're going to see an onslaught."

Right now, there aren't any IPOs scheduled to come public on the horizon, says Scott Sweet, managing director of research firm IPOBoutique.com. But the string of three successful deals in the first half of April 2009, the month kicked off with Changyou.com gaining 25% on the Nasdaq Stock Market, will "open up a window, and IPOs that have met the recent criteria of those that have worked will likely come out."

Under the best conditions, it will take longer, some say until year's end, for the pace to pick up in a meaningful way.

"If overall market conditions continue to improve, and if there are better signs the economy is actually bottoming, the IPO market will begin to open up to a broader group of potential issuers," says Jeffrey Bunzel, head of equity capital markets in the Americas for Credit Suisse.

Source.

According to research firm DealFlow Media, venture capital and private equity investors put nearly $1.5 billion into public companies in the first quarter, three times the amount invested by hedge funds, the traditional capital suppliers for PIPEs, or private investment in public equities.

Plummeting stock prices are prompting many venture capital firms, especially those that invest in health care, to snap up what they see as bargain-priced shares of publicly traded companies.

In its report announcing the first-quarter numbers, DealFlow Media says that venture capital firms’ increased involvement “suggests that we may be on the cusp of an era when the promise of PIPEs as ‘public venture capital’ will become a reality.”

Not so fast, says one venture capitalist. “When the history of this era is written, people will say how few PIPEs were done,” Dennis Purcell, senior managing partner at Aisling Capital, said onstage at a health care industry conference earlier this week. “What’s happening in the VC community is that there is not a whole lot in the public markets to invest in, but six months ago, I thought we would have one-half of our fund in the public market.”

On April14. 2009, the 100-plus attendees at that conference, Windhover Pharmaceutical Strategic Outlook in New York, were asked if PIPEs were the best way for venture capitalists to boost returns. Only 13% of the audience voted yes.

But investors don’t appear to be swearing off public-market deals any time soon. Index Ventures, traditionally a specialist in early-stage deals, raised a EUR400 million growth fund last year that will allocate a fair share of capital to PIPEs. Another veteran firm, Venrock, raised a $194 million fund in March that gives the firm extra capacity to make public-market or mezzanine investments.

These investors may not be putting any money into any newly public venture-backed companies anytime soon, though, considering Aug. 8 was the last time a venture-backed company held an IPO.

Back at the health care conference, venture capitalists were glum about the prospects of any such companies making the jump to listed status anytime soon.

Specifically regarding biotech IPOs, Michael Ross, a managing partner at SV Life Sciences, estimated that we won’t see such a public offering until 2011. Francesco De Rubertis, a partner at Index Ventures, guessed within three or four years, while Aisling’s Purcell was the most optimistic of the bunch, believing a biotech IPO would occur by late 2010.

Source.

The Wall Street Journal's Heard on the Street column says that eBay's statement that Skype can maximize its potential as a stand-alone company sounds dubious.

Although growing at a rapid rate with 405 millions registered users and a 44% boost in revenue to $551 million, the Skype's free calls between Skype users will limit revenue growth. Isn't the reason people use Skype is because it's free?

Analyst Jim Friedland at Cowen & Co. points out that the more people register to use Skype, the bigger the pool of people who can communicate for free by calling each other.

eBay may already know what a strategic buyer would pay. Its decision to announce a public offering for Skype, weeks after hinting it was willing to sell, suggests no one offered the price it wanted. Source.

Breakingviews.com thinks that while spinning off Skype is a good idea, why not also set PayPal free. The potential $2bn in cash from the Skype IPO would be nice for eBay shareholders who have suffered a 50% fall in the price of its stock price within the last year.

While Ebay’s auction business saw its revenues grow only 1% last year, Paypal’s jumped by 26%, and it expects Paypal’s revenues to double over the next three years to $5bn, with operating profit margins of 20%.

PayPal could be worth $15bn based on using rival payment processor Visa’s 2011 estimated earnings multiple. As an independent company, PayPal could be worth even more since it will no longer be part of a conglomerate discount and it get potentially more business from current eBay competitors like Google and Amazon since it would no longer be part of a rival. Source.

After a multiweek stock-market rally, IPO chatter has become increasingly upbeat about the second quarter. Though no one expects a return to the level of initial public offering seen in 2007, there are expectations for improvement over the past two quarters, when only one deal priced in each.

"Day to day, we certainly engage in more dialogue now about IPOs than in the prior six to nine months, and if there is a leading indicator, that is it," says Daniel P. Cummings, co-head of equity capital markets in the Americas at Bank of America Merrill Lynch.

Behind the scenes, bankers say they are seeing more interest from companies that want to discuss going public. Previously, the possibility of tapping the public markets seemed much less likely.

But with one strong IPO performance under its belt, last week's first-day gain of 25% by online videogame developer Changyou.com Ltd., and two more deals in the weeks ahead from language-software company Rosetta Stone Inc. and online university Bridgepoint Education Inc., at least the start of the second quarter is looking rosier than the past seven months.

Still, the IPO environment isn't welcoming to all, analysts and bankers agree. Only certain companies in industries that are somewhat defensive, or that show great growth trends financially are going to attract enough investors.

Some of the signals needed to define an IPO market in recovery still aren't present yet. There has been no appreciable upturn in the number of new companies registering IPO plans with the Securities and Exchange Commission. The only IPO filed in March came from Changyou.com; none have been filed so far in April.

Global economic uncertainty remains, and with that comes an uneasy feeling that the recent upswing in stocks is a temporary one. Many bankers believe that the IPO market won't recover more fully until the latter part of the year, or early 2010.

"We need to see the stabilizing benefits of the stimulus plans being put in place now. That would lead to an increased level of confidence in the overall market," says Jim Rossman, head of U.S. equity capital markets at Macquarie Capital.

Those companies that do have the chops to go public in the months ahead will fetch lower valuations than they could have two years ago, but the relative scarcity of deals could grab them more limelight, say bankers.

"The really good news is that companies that do venture into the IPO market are going to get a really serious look from a large group of investors, so they have the opportunity to be broadly supported if their story plays well," says David DiPietro, president of specialty bank Signal Hill in Baltimore.

Source.

Facebook is gearing up to befriend investors. That, at least, is the chatter around Silicon Valley after the social networking darling booted its chief financial officer. But an IPO would be risky given Facebook’s business model is still unproven, unless it has a gun to its head.

And it just might. The company is keeping mum. But the talk is that the capital Facebook raised from Microsoft two years ago may have had strings attached that could force it to launch an IPO sometime soon. That would explain why Microsoft’s $240m investment seemed to give the group such a massive valuation, at $15bn.

It’s easy to see why Silicon Valley is awash in Facebook speculation. The firm’s CFO, Gideon Yu, left abruptly earlier this week. The company said it wanted someone with more public company experience and is now taking advice from Peter Currie, the finance chief who led Netscape into the defining IPO of the dotcom-boom.

But an offering would seem foolhardy in a market as volatile as today’s, especially given Facebook’s finances. It is thought to have only brought in some $265m in revenues last year, with negative cash flows of some $150m. Though the company says it won’t make money until next year, Facebook says it has sufficient capital to meet its needs.

So why would Facebook need a financial executive with public company experience? One theory is that it gave Microsoft the right to put its stock back to Facebook if the company didn’t launch an IPO by a certain date. Such rights aren’t uncommon in privately placed venture capital deals. That would explain the $15bn price tag, which is some $9bn above Facebook’s own internal valuation.

Such a deal looked more appealing two years ago. Markets were booming and the social networking craze was going gangbusters. Indeed, Facebook has grown its membership to nearly 200m from just 40m when Microsoft, alongside Hong Kong mogul Li Ka-Shing, invested in the group.

There could be other reasons to consider an IPO too. Employees may want liquidity on their stock options. The number of investors also may be growing to the point where the company can no longer be treated as a private concern, a factor that led Google to debut. Or there could be nothing to the idea circulating through Silicon Valley. But where there’s poke, there’s usually fire.

Source.

Here’s perhaps a sign that the IPO market is in terrible shape: A promising venture-backed technology start-up has linked up with a special purpose acquisition company, commonly known as a SPAC.

The deal, if completed, would place TouchTunes Corp. on a public stock-exchange and give it access to capital in its bid to push its digital jukeboxes and entertainment screes into thousands more bars and restaurants. It sounds promising, but TouchTunes and Victory Acquisition Corp., the SPAC, first need to complete the deal. If history is any indication, that may prove to be difficult.

Over the past few years, SPACs have emerged as an option for start-ups looking to go public but unable to find an attractive price through an IPO. These shell companies typically raise tens of millions of dollars in an IPO, and then search for an acquisition target. They usually provide private companies with experienced managers who can help a start-up succeed as a publicly held business, as well as loads of liquidity.

But the model is largely untested, and most venture capitalists have stayed away as a result. Of the 161 SPACs that have formed since 2003, only 39% have completed acquisitions, while 22% have liquidated after failing to secure a deal, according to SpacAnalytics.com. The rest are either still looking for deals or have signed agreements to merge.

SPACs have especially taken a hit in the recent stock market downturn, causing a number of deals to fall apart. In addition, SPACs typically require shareholder approval for an acquisition to go through, which has led to concerns about their ability to close deals quickly.

Dynogen Pharmaceuticals Inc.’s planned merger with Apex Bioventures Acquisition Corp. died last year, for example, forcing the company to file for Chapter 7 bankruptcy after its lead drug candidate failed in clinical trials. Another start-up, Precision Therapeutics Inc., called off a merger with a SPAC in March after failing to reach an agreement on the terms by the two-year anniversary of the date the SPAC went public. After two years, SPACs dissolve and return capital to their investors if they fail to consummate a merger.

But VantagePoint Venture Partners, the investor behind TouchTunes, believes it’s worth a try. The deal between TouchTunes and Victory, which involves $330 million in stock plus the assumption of $40 million in debt, was orchestrated over the past two weeks, after Victory President Jonathan Ledecky was alerted to the business through a friend in the film industry that was interested in partnering with TouchTunes.

It’s been nearly eleven months since Victory held its IPO. According to papers filed March 13 with the Securities and Exchange Commission, the group plans to dissolve and return money to shareholders if it does not complete a business combination by April 24, a month from now.

“We went down the road on transactions several times, but have had a problem closing because we would get topped after putting these companies on the radar screen,” Victory President Jonathan Ledecky said. “We were very impressed when we met the folks at TouchTunes and think it’s a good fit.

“VantagePoint could have continued watching the company grow out of its own cash flow, but they said ‘Let’s go for it. We’ll take the dilution, but have enormous access to capital for this company,’” Ledecky said.

Geoff Mott, a partner at VantagePoint, said all parties involved have worked around the clock to close the deal in recent weeks. “I’m not in a position to talk about the degree of confidence we have, but I do think we have a solid, attractive business with a lot of growth opportunities,” he said, adding that VantagePoint plans to hold on to its shares in TouchTunes.

TouchTunes, which provides digital jukeboxes and entertainment screens to more than 38,000 bars, restaurants, retailers and other businesses in North America, recorded $85 million in revenue in 2008 and is profitable. In normal economic times, it could be considered an IPO candidate.

Source.