Despite a few noisy IT industry experts who believe another financial “bubble” is inevitable and could hit in the near future, 2014 nonetheless appears to be a promising year for initial public offerings because the pipeline of hot companies ready to access the market is stronger than ever.
This insight comes from attorney Rick Kline, a partner in the Goodwin Procter law firm, which has served as lead adviser on IPOs for Xoom, Gigamon, Marketo, Control4 and several others in the last several years. Overall, Goodwin Procter handled 18 IPOs in 2013 in the technology and life sciences sectors, ranking second behind Davis Polk as the most active of all law firms advising on IPOs.
“The pipeline is great for 2014. There are a number of companies who have filed confidentially or are gearing up for their first filing,” Kline told eWEEK. “My sense is that the market is in great shape, unless there is some external event that hits us or the U.S. has a problem with the debt ceiling issue. I expect 2014 to be robust as 2013 was.”
No Facebook, Twitter in Sight for 2014
In the last two years, a number of companies decided to wait for Facebook (May 2012) and then for Twitter (November 2013), Kline said, to gauge interest from the market. “The one I hear people talking about this year is Alibaba [the Chinese e-commerce site],” he told eWEEK.
Alibaba dwarfs even Amazon.com by sales volume: $160 billion in 2012 compared with $86 billion for Amazon, according to RetailNet Group. Its IPO could value the company at more than $150 billion, more than the IPO value of either Facebook or Google.
To put Alibaba’s size in perspective, consider one huge shopping day in November: More than 300 million people visited Alibaba’s Websites, and 50 million of them made a purchase. When all was said and done, that day generated 158 million packages to be delivered.
Yahoo, for one, will be looking forward to that IPO. In September 2012, Yahoo sold 40 percent of its stake in Alibaba for $7.1 billion, but it still holds a 24 percent share of the company. Depending on how the IPO goes, Yahoo stands to gain between $18 billion and $30 billion, Bloomberg has reported.
“We do expect at some point that Alibaba will have the IPO, and that will provide more cash for us,” Yahoo Chief Financial Officer Ken Goldman said.
So it looks as though China will be staging the biggest IT-related IPO of the year.
China’s Alibaba Projected to Lead IT IPOs in 2014
“There’s not really a [huge] U.S. IPO, like a Facebook or Twitter, on the horizon that we’re aware of,” Kline of Goodwin Procter said. “There are a lot of companies that are really solid, with significant revenue and great growth rates that will be attractive investment opportunities.”
Kline, bound by nondisclosure agreements, wasn’t able to name company names at this time, but as they become publicly available, eWEEK will be reporting on them.
2014 isn’t anything like the macro-environment 15 years ago, when the Internet was new and there was lots of venture capital money being invested in companies that might have had good ideas but really no viable business model, Kline said.
“Those companies [well-known examples were Pets.com, Webvan.com and a number of others] really had no right to be public companies; they had no financial model to support themselves and weren’t mature enough,” Kline said.
Good Number of Solid Companies Will Surface
“I haven’t seen many of those offerings,” he said. “Most IPOs that are brought to market are solid companies; if they’re not profitable, they have significant growth rates or a short-term path to profitability.”
Enterprise software companies—namely in storage, cloud middleware, social networking, sensors, big data analytics and user interfaces—appear to be among the favorites for going public this year.
The fact that the capital market’s windows were closed for a few years has meant that there are now more mature companies that are ready to go public, Kline said.
“When you combine that with the fact that the Internet infrastructure is now ready for business [thanks to widespread broadband connectivity, improved networking equipment, and better servers and software], with everything moving to the cloud and the SaaS [software-as-a-service] business model, there are a lot of new companies with interesting, predictable revenue models that are exciting for investors, and investors are paying for those companies,” Kline said.