The jolt that was supposed to come from Google’s IPO has yet to materialize, and some are now wondering if it ever will. Part of the lackluster IPO market can certainly be blamed on typical summer doldrums, but now that summer’s gone, that excuse doesn’t fly.
Longtime IPO analyst John Fitzgibbon was optimistic that deal activity would pick up in September. He notes that 13 companies were on the calendar to go public in September. In the same period a year earlier, less than half that number (six) actually priced. As of Sept. 15, no new deals had been done.
The numbers show that VC-backed IPOs turned up in the middle of the year, but that they dipped dramatically in August. Venture-backed IPOs totaled just 13 in the first quarter, but then surged to 29 in the second quarter. July was a good month, with 13 VC-backed deals priced, but then the number dropped to just six in August.
The summertime blues not withstanding, this is the opposite of the proposed Google effect, whereby the IPO window was supposed to fly open once Larry Page got obscenely wealthy. It could be argued that Google’s pricing troubles helped mitigate its market impact, but the reality continues to be that private equity-backed companies have never really looked to Google as a predictor of their own IPO fortunes. Instead, they look to other recent IPOs in their industry space-which, in most cases, have not experienced strong aftermarket performance (not to mention poor pricing points). As such, the new conventional wisdom is to wait until the IPO market looks safer. This might be a discouraging development for private companies that were raring to go public just a few months back, but it’s a net gain for both public and private market investors. Too many unprofitable companies were filing to go public in early 2004. It wasn’t a repeat of 1999, but some of the same undercurrents were present. Now we’re seeing a return to fiscal common sense, as private companies learn that balance sheet strength and product availability are the primary selling points in an IPO.