Flanagan Q&A: The IPO Window Isn’t Completely Closed

Earlier this month, Bob Flanagan joined Raymond James Financial as head of the firm’s hardware technology banking group. He focuses on semiconductors, optical devices, communications equipment and electronics.

Prior to Raymond James, Flanagan managed Oppenheimer & Co.’s Silicon Valley office. He actually joined Oppenheimer in 2007 when it was CIBC (Oppenheimer acquired CIBC in November 2007). Flanagan was also a senior tech banker at Cowen & Co. and Thomas Weisel but began his career at Salomon Brothers.

Flanagan currently works out of Raymond James’ San Francisco office but the IB plans to open a Silicon Valley satellite location later this year. Flanagan spoke to me by phone earlier today.

1. Raymond James has had a tech banking practice for a long time. When will you open the Silicon Valley satellite office?
Later this year… We’ve got a big office in San Francisco and it will continue to be the base. There are a lot of PE players in Silicon Valley and a lot of tech companies that we deal with are down there. It makes sense as we build our business to have an office down there.

2. Do you think the demise of the so-called “Four Horsemen” has hurt middle market tech deals?
I joined Thomas Weisel at end of 1999/the beginning of 2000. It was the heyday of the tech bubble. Since that time the market has changed a lot and much is attributed to the loss of the four horsemen. But a lot has contributed to the demise of the tech banking business. Transaction volumes still remain high but with large and small banks pursuing it. What makes it difficult is that the dollar size of transactions is smaller. There are fewer IPOs. The perception is that it’s a much more difficult marketplace, but the reality is that there is still opportunity to address the traditional tech market that was driven by the four horsemen. We still think it’s a good opportunity for us but it’s a very competitive marketplace.

3. Why is it harder for small companies to go public? Is it the regulations?
It’s not just the regulations but the higher cost of being pubic. It’s also influenced by the size and nature of buy-side funds, and their desire to own larger stakes in companies. The smaller, tens of millions of dollar IPOs that were common in the 1990s wouldn’t afford funds the stakes they like, and the liquidity they like. There is also the fact that the investment side has changed as well…larger investment banks have a bias/preference for larger deals.

4. To go public in tech, how big do you have to be?
We’d say at or close to $20 million to $25 million a quarter run rate. That’s $100 million of revenue. That’s probably the cut off we’d look at.

5. We had a bit of a market volatility in August and many IPOs were pulled. Do you think the IPO window is closed to all companies right now?
The market is not closed entirely. It’s more a function of which types of companies can go public and the valuation they can go public at. Some of the larger, higher profile companies on file can do IPOs now and get lot of attention because they will be relatively alone in the market. But smaller companies, or the more marginal growth stories, might find that valuation pressure is high enough that they choose not to go. We’re certainly hopeful for a more active fall IPO window.

6. What about M&A? Did August’s volatility stall deals?

I don’t know if it’s back to business. Certainly there is a lot of uncertainty in the market. Good companies can go out anytime. The August volatility probably caused a dampening on what was expected to be an active, “right after Labor Day” market. But as we get later into the fall, we’ll see companies start to move out and start to push forward with offerings. August just ended up pushing the calendar later into the fall but not closing it entirely.

7. It seems like all the VC activity generally comes from the West Coast. Do you think the East Coast will ever be as strong as West Coast VCs?
Given the broader ecosystem in Silicon Valley, the venture community garners most of the attention of the press. Probably because most startup activity is here in the Bay Area. It kind of feeds off of that. One of the things that has clearly occurred over the last decade is a strengthening and broadening of the regional venture markets. In the northwest and southeast and elsewhere you see pockets of strong VCs investing locally and also thematically. I don’t think West Coast VCs have a lock on great ideas, but there is no question that the startup and venture community in Silicon Valley still gets viewed as the market proxy.

8. What books are you reading?
I’m reading the Count of Monte Cristo. I’ve been trying to read the books my son has to read for his English class as a way to refresh my view of the classics. It takes a lot when you’re only reading four pages a day. I did also read Truman by David McCullough.