Maybe Next Year

The failure of the Google IPO to sizzle confirms the market wants only steak.

For Paul Flanagan, now CFO of a thriving, privately held, Web-based graphic design and printing company called VistaPrint, memories of his last experience with an initial public offering are still vivid.

“It took three years, and a lot of the hair out of my head,” he says, recalling the wild ride following StorageNetworks Inc.’s June 2000 offering. The stock price peaked at $154, but went down to a final 2003 liquidation payment below $2 a share. “Of course, it was a completely different time,” notes Flanagan, who rose from CFO to CEO in the Waltham, Massachusetts-based company’s last few months. “Leading up to that IPO, we were on pace to lose $100 million in a year, and analysts said, ‘Don’t worry about it; you need to grab as many customers as you can.’ ”

Today, Flanagan worries. VistaPrint, with its five-year track record, three years of profitability, experienced management, and strong cash position, may look like the ideal IPO candidate. But Flanagan says he would look long and hard at the IPO market before jumping in — paying special attention to the level of cash inflows into mutual funds (which he sees as too weak) and watching for signs that the pricing softness found in recent deals is abating.

“If I were in a position to go public right now, I wouldn’t say, ‘Let’s run to the printer,’” he notes, citing other uncertainties such as the election, oil-price volatility, and Iraq as factors that could dampen a firm’s enthusiasm for going public.

Google’s Coattails

After a sharp uptick in filings early in the year, the IPO market slowed again this summer. The somewhat disappointing IPO for Google Inc., with the number of shares offered slashed and the price per share cut from $108­$135 to $85, captured the most attention. In Google’s shadow, some offerings were withdrawn and others suffered pricing shortfalls.

Late-summer doldrums typically take a toll on IPO activity, as Wall Streeters take their vacations. This year, though, the remaining market-watchers were left to speculate about whether corporate filings in 2005 would resume the more active pace of the first half of 2004, when 228 companies filed for offerings, up from a mere 23 the year before. Also of interest: would IPO withdrawals taper off, reversing the trend in which many more deals were withdrawn after the midyear mark? (See “IPOs at the Crossroads,” at the end of this article.)

Of course, the added expense and delays associated with going public in the post-Enron regulatory environment have boosted the prospects for non-IPO capitalization for some time — leading more private companies to seek a buyer instead — so fewer entrepreneurs automatically tailor their business plans for an IPO exit strategy. “In this day of Sarbanes-Oxley oversight and regulation, the cost of going public is $4 million, even for the smallest companies,” says David Lavallee of boutique investment-banker Revolution Partners. He sees higher multiples, especially in the high-tech sector, suggesting that being acquired is becoming a more popular scenario for small private firms. Nonetheless, most experts expect some level of increase year-to-year in 2004 IPO activity.

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