Much has been said over the course of the past several months about the resurrection of the moribund market for Initial Public Offerings. We are hopeful that the optimistic tone continues and is borne out as IPO’s are a crucial mechanism for early investor liquidity, and more importantly, capital and a public currency facilitating strategic M&A initiatives. The M&A market has been advantaged toward buyers for quite some time. In fact, well before the economic slowdown which began to unfold in mid-late 2008, we experienced significant buyer hesitation within internet. mobile and digital media sectors which resulted in a clear buyers market dynamic. The M&A tone has undoubtedly improved over the past couple of quarters with transaction volume showing marked improvements in each quarter of 2009. While we’d generally classify today’s market as improved, the lack of buyer breadth remains a factor.
As a rule, a healthy IPO market translates into a healthy M&A market for several reasons. First, viable IPO candidates are generally attractive acquisition candidates as they have built compelling, sustainable businesses. Many acquirers have a strong preference toward acquisitions of real businesses vs. earlier stage companies. It’s not uncommon for companies who have filed for an IPO to end up selling, and in fact, it is a well known strategy to attract a buyer. Second, newly public companies generally become active acquirers within a few quarters of their IPO as they seek to build their businesses. Third, a healthy IPO market sets a positive tone which is contagious amongst industry participants.
Recent IPO filings of note include LocalReach and Motricity. We will begin to track the IPO market activity and bring some perspective in following posts.