An IPO could still be the right exit strategy--if your company fits the bill, or breaks the old rules.
After a burst of encouraging IPOs late this summer, some experts say the IPO party is not over.
Which companies are on the guest list? Those with the size to weather macro-economic volatility, a clear path to fast growth, an experienced management team, and, of course, shares that can be reasonably priced.
"I think fall will be a good IPO season," says Francis Gaskins, a partner at market tracker IPOdesktop.com. "The greed factor is back. But the door is not open for everybody."
Offering stock publicly still has unique advantages. "For companies that need to raise outside capital, going public still gives them an alternative to banks, gives options to their employees, and gives the company credibility," concurs Kathleen Smith, principal at Renaissance Capital. "It's still a great objective for a company. It's a privilege."
Since Facebook's disastrous spring debut, many IPOs have come out strong. Certainly, this is because they were priced low. More than half of the IPOs since Facebook's were discounted below the midpoint of their price range, according to Renaissance. Smith says that this resulted in an average 20.9% return--a good sign for the market over all.
"After something like Facebook, or any period of failed returns, investors require a greater discount to participate," Smith says.
The first IPO juggernaut since Facebook's IPO was Palo Alto Networks, a triple threat, with robust size, rapid growth, and strong leadership. The Santa Clara, California-based firewall maker's July debut exceeded expectations, with shares jumping 26% in the first day of trading and closing at $56 per share. Led by CEO Mark McLaughlin, who serves on President Obama's National Security Telecommunications Advisory Committee, Palo Alto Networks reportedly doubled its revenue to $118 million this year. It raised $260 million, and shares continue to perform well.
Five Below, a Philadelphia-based teen retail chain that sells items that cost less than $5 each, made a strong debut in July. It priced shares at $17, and had a first-day close at $26 per share. The founders of the company have a long history in the retail business. Founders David Schlessinger and Thomas Vellios previously held top posts at Zany Brainy, a retail children's educational products company, and its CFO, Kenneth Bull, was previously the finance director at Urban Outfitters.
In August, a traditionally slow IPO month, two more fast-growth companies that were modestly priced had strong debuts. Globus Medical, a med-tech company based in Audubon, Pennsylvania, had a healthy first day, closing $1.50 above its $12 opening price. The company has attractive financials, and reported an 18.6% year-over-year sales increase in its Q2 earnings report. Meanwhile, Eloqua Limited, the maker of a revenue performance management software, hit the market in the first week of August, and rose above its opening price of $11 to close at $12.89. Shares have climbed to more than $14 since.
The next company on the radar of many analysts is security software maker Qualys. The company, which was recently named one of Silicon Valley's largest private companies, will likely price this month. Although the Redwood City, California-based company counts Hewlett-Packard and Trident Capital among its investors, CEO and founder Phillipe Courtot is the company's largest shareholder, owning 39% of the company. The company brought in $76 million in revenue last year and has more than 300 employees.
"Cloud companies typically have high-gross margins and most can get close to breaking even or close to profitable. If a company fits that profile, it's likely good to go," says Gaskins, of IPOdesktop.com.
But the wild card for the upcoming IPO season, experts say, lies in the JOBS Act, which now allows "emerging growth" companies (less than $1 billion in revenue) to file registration papers confidentially. "This means we actually don't know all the companies in registration right now," says Kelly. "So, basically there's a whole group of companies out there testing the waters that we don't know about."
And certainly some will be toasting the public markets again in coming months.