Venture capital firms have emerged from behind private equity's shadow to take a starring role in the year's best performing US initial public offerings. In a top-ten list, measured by first day IPO performance, about half of the deals were brought to market by venture capitalists, according to data tracker Dealogic.
"Venture capital firms, responsible for the best deals over the years, have been crowded out by private equity," said Scott Sweet, managing partner of research firm IPOboutique.com, but leveraged buyouts are no longer grabbing as many IPO headlines. "People are no longer willing to pay for debt-ridden companies," said Sweet, of the deals that have floundered as credit markets have tightened.
Venture capital firms, like their LBO counterparts, make investments in companies in hopes of a sizeable return when it comes time to cash out, but without the heavy debt component. Through the first nine months of the year, more than $20 billion had been raised by venture capital funds, according to the National Venture Capital Association (NVCA).
That pales in comparison to the laden coffers of private equity firms, with Blackstone Group raising about $21 billion for a single fund earlier this year, but Sweet said venture capital's style of smaller investments in growth companies was proving a resilient one.
The average value of a venture-capital sponsored IPO was about $132 million, according to third-quarter figures from NVCA. Among the handful of venture capitalist firms backing this year's top 10 IPOs is Westport, Connecticut-based Oak Investment Partners LP.
Oak sponsored Athenahealth Inc, a Web-based provider of services to doctors offices, rose 97 percent in its September 19 market debut, making it the best first-day performance of any IPO so far this year.
On Friday, Athenahealth closed at $42.80 per share, or about 140 percent higher than its $18 offering price. Oak Investment also sponsored Ulta Salon Cosmetics and Fragrance Inc, a Romeoville, Illinois-based retailer, which gained about 66 percent in its October 24 debut, and is now trading about 43 percent higher. Ulta placed as the tenth best IPO performer of the 199 US IPOs year to date.
Venture capital firms ABS Capital Partners and Camden Partners Holdings LLC sponsored American Public Education, an online education provider for the military and public sector, which rose about 80 percent in its debut earlier this month.
And Constant Contact, a provider of Web-based e-mail marketing software, rose 75 percent when it listed its shares on Nasdaq in October, sponsored by Morgan Stanley's Morgan Stanley Venture Partners. Three of the four are technology-based companies, typical of venture capital investments and in keeping with the tech-heavy makeup of this year's offerings.
Oak Investment, which has an office in Palo Alto, California, counts about 150 technology-based companies in its investment portfolio. In comparison the firm, which has total investments of about $8.5 billion, lists 14 retail and restaurant investments, 10 in its health science company portfolio.
"Tech deals really emerged as the leading IPOs," said IPOboutique's Sweet. Dealogic listed a dozen tech deals through the first nine months of the year, making it the most active sector, followed by 9 new issues by financial services firms.
But tech deals only fly in the current market if they are a "growth story", and near break-even or already profitable, said Sweet, in contrast to the hundreds of unprofitable tech firms that flooded the IPO market in the late 1990s.
Comments
Comments are closed.