Private Equity News & Analysis

IPOs inch forward

Though the number of venture IPOs is only slowly increasing, 41 venture-backed companies are waiting in registration with the SEC. Dave Keating reports.

-

Venture-backed enterprise companies have been anything but impatient over the past few years. As US IPO prospects have withered, the number of venture-backed companies waiting in the rafters has grown, and so has a sense of anticipation. As these companies wait it out, all are eagerly watching the market, hoping for the day when it is once again advisable for a small company to go public.

 

Mark Heesen says he is cautiously optimistic about IPO activity.

New data from the National Venture Capital Association may offer a ray of hope for these patient young enterprises. According to a study released last week, the second quarter of 2006 saw nineteen venture-backed companies raise $2 billion through IPOs, an increase of 90 percent over the first quarter’s 10 companies raising $540 million. The figure is also near double the number of IPOs for the second quarter of 2005.

 

However NVCA president Mark Heesen says the organization is only cautiously optimistic. He points out that over the first half of 2006 the number of IPOs has been 29, and if the second half of the year sees the same amountm the full year will roughly equal last year’s disappointing performance of 56 IPOs. However he says there are signs that the next six months could see increased IPO activity.

 

“There are 41 companies in registration right now, which is much higher than we’ve seen in the last several quarters,” he says. “There’s a huge number of companies that are waiting to be acquired or go public right now that are venture-backed. Coming off the dot com bubble era, those companies that were funded that made it through that difficult period are ripe to be acquired or go public.”

 

So far the M&A market for venture backed companies has remained strong in 2006, with 86 acquisitions occurring in the second quarter. This is a drop from the first quarter’s 101, but still much higher than the same time last year.

 

The life sciences sector led the venture-backed IPO activity in the second quarter, offering nine IPOs and raising a total of $452.2 million. The largest IPO in this sector was the $106.5 million offering from Northstar Neurosciences, a Seattle-based medical device company backed by Mayfield Fund, Domain Associates, Canaan Partners and AEA Investors.

 

Venture-backed companies that went public in the second quarter benefited from increased offering sizes and post-offering values, both at the highest levels since the fourth quarter of 2004. For the rolling 12 month period ending June 30, 52 percent of the companies that went public are currently trading above their offering price.

 

The second quarter also saw three venture-backed companies successfully go public on foreign exchanges, two on the London AIM and one on the London Stock Exchange. Heesen says that as the complexities of Sarbannes-Oxley make it more difficult for smaller, less established companies to go public, foreign exchanges will attract increasing numbers of US companies.

 

“I think this is not just a flash in the pan kind of issue,” he says. “We are a global economy. AIM is being very aggressive in marketing to VCs and portfolio companies, saying that we will take you public. It’s logical for a lot of companies to be based on an exchange not in the US.”