Could Groupon Revive the Halted IPO Market?
TrendWatch - The Halted IPO Market
Inc.'s Burt Helm talks to Ernst & Young markets expert Herb Engert about the rocky road ahead he expects for initial public offerings.
After months of stops and starts, Groupon finally intends to go public. CEO and founder Andrew Mason has begun pitch sessions to investor groups—part of the so-called roadshow. You can see his 30-minute presentation online, too.
Groupon plans to issue its first shares on NASDAQ on Nov. 4 and hopes to raise close to $200 million on a $11.4 billion valuation. These are exciting figures but they're considerably lower than those circulated a few months ago, when Groupon was linked to a $30 billion valuation. That’s because the IPO market halted after Washington's 11th-hour Debt Deal, and is now only slowly creaking back open. Last week, Liberty Mutual withdrew its IPO, and the most-recent company to go public, Ubiquiti Networks, a wireless networking company in San Jose, Calif., cut the per-share opening price on Oct. 14 by some 30 percent.
To get a better gauge of what's to come in this tumultuous IPO period, Inc.’s Burt Helm spoke with Ernst & Young’s Herb Engert, Americas Leader of Strategic Growth Markets. What does Engert predict about the public markets right now? Watch the video to find out.
In this week’s TrendWatch Facts & Figures, some more details about the IPO market halt:
- In mid-August, the IPO market started to shut down. Only two companies went public: a Boston software company, and Tudou, a Chinese video website. Each company discounted its per-share opening price ahead of its IPO.
- Next up: Ubquiti, which started trading Oct. 14. Originally hoping to get $20 to $22 per share, it discounted the price range to $15 to $17.
- In all, 71 percent of 2011 IPOs are currently trading below issue price, according to Renaissance Capital, which publishes IPO research.
- The Renaissance Capital index of the U.S. IPO market is down 19.5 so far this year.
00:02 Burt Helm: I'm Burt Helm, writer with Inc. Magazine and we're here to talk today about the IPO. It is the dream for many entrepreneurs. The bad news is that the IPO market in 2011 after a promising start and a lot of fuzz has gone to a halt. So, to talk about that today, I'm joined by Herb Engert who works at IPOs everyday and other types of growth capital at Ernst & Young. So, when you're advising your clients when the IPO market is moving in fits and starts like this. It recovers and it doesn't. What do you tell them as far as where to look for money? Should they be looking for other places for their money?
00:43 Herb Engert: First off, we tell them that they should prepare for a capital raise like this an IPO 18 to 24 months in advance and make sure you got the right team. I will say that that is absolutely critical. You need to have the right team.
00:56 Helm: Is it a different kind of team for... I mean, what do you mean by that?
00:59 Engert: Well, you need a team that is going to be ready for not only the financial aspects, right? But you need a media PR team, right? To tell your story. You need operations folks, you need investor relations. So, I mean, it's not just accounting. It's you need accounting, legal, governance, right? So it's all those things. So, you got to really evaluate your team and make sure that you have the right team in place. And then you should look to building those processes, infrastructure controls, governance, risk management, all of those things feed into a well-run company, one that will continue to grow and prosper and create you all the returns.
01:39 Helm: When the IPO market, when they're... Appetite returns from investors to start financing new public offerings, are there going to be certain kinds of companies that you see will be the first ones out?
01:52 Engert: Sure. I do think that there's a lot of companies currently in the pipeline of a 180, technology, oil and gas, clearly lead the charge. There's quite a bit of banking capital markets as well. But I think tuck in particular some of the social media, online gaming, all the social networking, I think those have certainly been attractive. There has been a lot of media attention in those and I think that will continue.
02:19 Helm: LinkedIn had its big IPO earlier this year. They got a lot of people talking about, all of the other social media companies. Do you see the same kind of excitement returning to Zynga and Groupon and those types of companies that everyone was seeing as really leading the charge into to recover the IPO market? Now, do you see that happening again?
02:43 Engert: I think that those companies that you reference are exciting because they are innovative and they're addressing kind of real-life consumer demands, and issues, and things that people are excited about. So, they're addressing the concept of innovation and what kind of the future represents. So, that's what I think is what's exciting about it.
03:04 Helm: Alright. So make a bet for me here. When are we going to... You said someday, we're going to return to the levels we've seen before 2008, right? So, when?
03:17 Engert: You know, I want that crystal ball as much as you do. It's going to be a rocky road out there and I think it will be for some time to come, but good companies will get financing. They will... The capital markets will open back up and they will seek... They will seek that avenue.
03:30 Helm: It's gonna be a rocky road. Okay. So Herb Engert, thank you very much. This is TrendWatch on Inc.com.
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