Tech sector IPOs surged by a factor of five in terms of value from 2008 to 2009. A mere $749.2 million raised in 2008 jumped to $3.8 million so far this year, according to data from Thomson Reuters. In 2008, only three went public, while 10 tech companies made the plunge in 2009. And, expectations are even higher for 2010.
Paul Bard, a research analyst at Renaissance Capital, forecasts between 40 and 50 tech industry IPOs next year, in which $4 billion to $5 billion in capital would be raised. "We've been expecting an uptick in technology because it has really been underrepresented in the market over the last few years," says Bard. The IPO market for high-tech companies was strong in 2007, but it seized up along with virtually every other form of capital raising when the financial crisis erupted in 2008.
Three more companies filed last week, which shows that the upsurge in 2009 still has not come to a close. Sensata Technologies, based in the Netherlands, is looking to raise $500 million, and Telegent Systems, a chip manufacturer, is looking for $250 million. Software developer RedPrairie Holding is planning to raise $172.5 million in the IPO it has filed.
Sensata was purchased by Bain Capital from Texas Instruments (TXN) in 2006, and the lead underwriters for its IPO include Morgan Stanley (MS), Barclays Capital (BCS) and Goldman Sachs (GS). Telegent is backed by New Enterprise Associates, Walden International and Index Ventures and is being underwritten by Goldman Sachs and JPMorgan (JPM).
The largest tech IPOs this year have been Verisk Analytics (VRSK), Emdeon (EM) and Fortinet (FTNT), which raised $2.16 billion, $422.5 million and $179.7 million, respectively.
Ben Howe, CEO of America's Growth Capital, says, "There is an enormous amount of capital on the sidelines right now, in mutual funds and hedge funds, looking to make high-return investments as they would find in technology IPOs." Pent up money should fuel next year's action.
As the trend runs its course, Bard believes that the quality of the IPOs coming to market will fall from well-established companies backed by major private equity players to those that are smaller and supported by venture capital money. Risk will increase ... as will upside potential. "As the window continues to open," he says, "you may start to motivate younger companies and ones that are not as established."
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