A Popping Tech IPO Market

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 |  Includes: BV, DWRE, EXTG, FB, GWRE, MM
by: 451 Research: Inorganic Growth

By Brenon Daly

If the overwhelmingly bullish equity market didn't do much for M&A in the first months of 2012, it certainly gave a big boost to the companies looking to go public. Investors have handed out double-digit valuations to a number of IPO candidates so far this year, pushing several new offerings above the magical threshold of $1bn in market capitalization. That has sparked a rethink about exits by startups and their backers, who had been banking almost exclusively during the recession on selling their companies. (Overall, as we recently noted, spending on tech M&A in Q1 dropped to its lowest quarterly level in two years.)

A quick look at the list of Q1 offerings arguably shows a healthier period for tech IPOs than at any point in the past decade: Guidewire Software (NYSE:GWRE), which went public in January, has doubled since its debut and currently trades at a $1.5bn market value. ExactTarget (EXTG) has created even more market value since its March offering, which gave the company the largest capitalization of any SaaS company on its debut. Millennial Media (NYSE:MM) nearly doubled during its March debut, valuing the mobile ad platform vendor at nearly $2bn. In late February, Bazaarvoice (NASDAQ:BV) went public above its expected range and has risen steadily since then. The social commerce firm commands a valuation of $1.1bn, roughly 10 times the sales it recorded in 2011. Demandware (NYSE:DWRE) trades at an even steeper multiple: Its $800m market cap works out to an eye-popping 14 times last year's sales.

And, if anything, the current quarter should build on the momentum established by the IPO market at the start of the year. All investor eyes are looking ahead to the seminal offering from Facebook, which is reportedly set to take place next month. The social networking site, which filed its prospectus on February 1, is likely to start its life as a public company valued at about $100bn. That's an astounding valuation for a company that earned $1bn on sales of $3.7bn in 2011.

While Facebook (NASDAQ:FB) is pretty much a once-in-a-generation IPO, the buzz it generates will undoubtedly spread beyond the specific offering and even the consumer Internet sector. That will likely help entice more IPO candidates to put in their paperwork, as well as boost the fortunes of those that do make it to market.