The Coming IPO Torrent

According to Dealogic, the value of tech companies waiting to go public has quadrupled -- from $1.1 billion in January 2006 to $4.7 billion in 2007. This build-up is being driven by a number of factors -- the NASDAQ composite index being up over 16% since May 2006, the number of filings by private tech companies being up 31% in the first 3 months of 2007 over the comparable period in 2006, and perhaps most importantly, the fact that technology IPOs in 2006 returned an average of 37% over their offering prices (renaissance Capital).

When combined to the flurry of mergers and acquisition activity being driven by an increasingly aggressive (in all aspects - deal size, valuation, and speed of decision-making), this burgeoning tech IPO boom has profoundly positive consequences for emerging and middle market companies.

Perhaps the most important of these consequences is the easing of access to capital. While never easy, positive acquisition and public markets investor sentiment at trickles down throughout the investment chain. Emerging and smaller companies seeking capital are receiving more thorough consideration from prospective investors, and faster decision-making turnaround times.

Another key consequence, which can be positive or negative depending on management response, is velocity. The capital markets are of the mindset to reward managerial and entrepreneurial teams that can conceive, articulate, and execute upon business models and growth initiatives rapidly. Fast-moving capital markets like the current conditions reward intelligent risk-taking (including the willingness to fund operating losses) and aggressive thinking and action in regards to sales and marketing expenditures, mergers and acquisitions, and capital structures.

We at Growthink believe that a confluence of macro-economic trends, including a long NASDAQ and private equity fallow period, opportunities presented by globalization, and the softening of the real estate investment markets, place us in the early stages of a long-term private equity bull market. Managers of emerging and middle market companies should position themselves to profit from this market via, above all else, thinking big, acting fast, and occasionally stepping back from their day-to-day operational challenges to reflect, plan, and act on the various equity growth and financing opportunities this private equity bull market affords.