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Overseas IPOs hot trend for start-ups in Q3

Start-ups looked overseas to fulfill IPO goals while acquisition rates doubled

Financial trends and news by Hannah Young
October 3, 2011
Short URL: http://vator.tv/n/1fc1

Should Groupon, LivingSocial, or any of the venture-backed companies currently planning an IPO go public overseas instead of the U.S.?

If they did, they wouldn’t be alone. 

Half of the venture-backed companies that completed an IPO last quarter went public overseas, according to the report, according to a just-released report by the Dow Jones VentureSource.

The report shows that of the 10 U.S.-based venture companies that completed an IPO in the third quarter, five went public on exchanges in Asia and Europe. This was a stark contrast to the first half of 2011 when all 25 venture companies that went public listed on a U.S. exchange.

"Regulations in the US increase the cost of IPOs and maintaining a public listing,"  said Ai Sato, senior research manager for Dow Jones VentureSource, in an interview with Vator News. 

"While this is not new, the current economic climate could be encouraging start-ups to look for more cost-effective ways to go public. We've also noticed that many of the companies that went public overseas had an office in the country in which they held their IPO."

US IPOs sport higher market caps

When comparing the post-valuation values of the companies that chose to IPO in the U.S. versus overseas, those that went public in the U.S. had a median market cap of $407.98 million compared to the median  value of $229.84 million for those who went public overseas.

Zillow Inc., which went public in the U.S., had the highest market cap of all 10 companies that went public in Q3.

Compared to this, GI Dynamics, Inc., which went public on the Australian exchange, had the highest post-valuation value of a company that went public overseas at $284.87 million.

In addition to Zillow, companies that chose to IPO in the U.S. in Q3 included Tangoe Inc., Horizon Pharma Inc.,  Carbonite Inc., and Skullcandy Inc.

The other companies that chose to IPO overseas included: CoAdna Holdings Inc., which went public in Japan; Spectra Systems Corp., which went public on the London exchange; and Parade Technologies Ltd. And Global Lighting Technologies Inc., which both went public in Taiwan.

The report showed that liquidity markets for venture-backed start-ups tightened in the third quarter with the 10 companies that completed an IPO raising $505 million compared to the $559 million raised by the nine companies that IPOed during the same period last year.

The median amount of venture capital raised prior to an IPO dropped 49% to $26 million in the third quarter. The median amount of time it took a company to reach liquidity fell to 6 years from 6.7 years in same period last year

The pace of initial public offerings also slowed dramatically throughout the quarter, from six in July to four total for August and September.

“IPOs were weighted to the last two months of Q3 last year, whereas most IPOs in Q3 2011 went out in July,” said Kim Gagliardi, a spokeswoman at Dow Jones & Company, in an interview.

During Q3 2010, four companies went public in July, four in August, and one in September.

M&A activity drops, but media price doubles

Though there was also a 16% drop in M&A activity compared to the same time last year, the median price paid for a company more than doubled to $100 million.

Gagliardi said it really depends on the company, however, when weighing the decision of whether an M&A or IPO would be a better option. She noted, however, that there were signs that many companies are preparing for when the market improves.

“If you look at the number of companies that filed in the third quarter, 27, clearly a lot are lining up for when the market improves,” Gagliardi said.

Currently, 61 U.S. venture-backed companies are in IPO registration. Twenty-seven of those companies filed during the third quarter.

Buyouts of venture-backed companies by private equity firms also tracked below the same period last year. Private equity firms bought six venture-backed companies for $560 million in the most recent quarter, down from the same period last year when private equity firms bought nine companies for $872 million.

In good news for enterprise technology start-ups, interest in these technologies drove deal activity in the third quarter. The Information Technology industry saw the most consolidation as 57 M&As and buyouts netted $6.4 billion. The Business and Financial Services industry was the second most active industry as 26 deals netted $2.8 billion.

With this report, it appears that patience or adaptability may be the strongest virtues for companies looking for an exit from venture-backed capital.

(Image source: askventure.com)