A funny thing happened in the midst of the market’s meltdown –for the first time in recent history the most heatedly talked about subject in Wall Street and Silicon Valley tech circles is not the filed IPOs of Groupon and Zynga or even the much speculated offering for Facebook.
The verdict is out on whether the worldwide market bloodletting means that the IPO market is closed for the foreseeable future. As TV trucks line the canyons of Wall Street to catch on tape the financial Armageddon taking place, the conventional wisdom at the big investment banks is that investors are skittish and will have no appetite for IPOs — social or otherwise — regardless of how highly anticipated they may have been just a few short weeks ago.
But 3,000 miles away in Silicon Valley, the view seems far less bearish. “One or two weeks does not a market make,” notes one veteran tech banker. “The drags on the market have been here for quite a while–Europe, jobs, a dysfunctional Congress and the deficit–and yet quality offerings like LinkedIn and OpenTable still got out.” Accordingly, the banker and others in Silicon Valley seem far less panic stricken than their pin-stripped brethren and most believe that the planned Social Commerce IPOs will eventually proceed as planned and receive high investor interest, even if they may have lost a week or two or three.
For some, the current freefall is reminiscent of the Long Term Capital Management crisis of the late Summer/Fall of 1998 when it looked like the humming tech IPO market would slam shut. With LTCM teetering on the brink, the fear was that the massive hedge fund’s demise would have significant negative impact on markets worldwide (it’s the first time I remember “contagion” being used in a context other than medical).
Many tech-focused investments banks announced layoffs and the basic shutting down of their IPO machines (rumours are swirling this morning that similar layoffs will be announced starting today). Others like Hambrecht & Quist, where I was a research analyst at the time, decided to hunker down and did not lay anyone off. While H&Q did stop hiring, it was in prime position when the IPO window did indeed reopen (with a vengeance) within weeks of the bailout.
It will be interesting to see how quickly investors are willing to look beyond the current upheaval and regain their appetite for highly anticipated tech IPOs and at what valuation. “Once the dust settles, growth tech stocks, including IPOs, will do even better in this low growth environment because investors will be hungry for growth,” said a veteran Internet CEO. “Apple at 10 times trailing EBITDA (cash flow) is crazy cheap for such a great company.”
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