Miami-based investment banking firm Cassel Salpeter & Co. released this week its quarterly review of technology investment activity, which highlights a recent cluster of initial public offerings amid a mostly stagnant year.
The report covers the period between July 1 and September 30. It finds that a bulk of public offerings occurred during Q3 — five in September (Nutanix, Tabula Rasa Healthcare, The Trade Desk, Everbridge and Apptio) and Impinj in the previous month. The activity overwhelmed that of the preceding eight months’ combined — five IPOs in Q2 and none in Q1.
The average enterprise value of Q3 IPO companies was about $150 million, about half of Q1 IPO companies’ average enterprise value of $300 million.
The underwhelming pace of 2016 can be attributed to the robust private market, said Cassel technology director Ranjini Chandirakanthan, who helped compile the report.
“There is so much money in private equity,” she said. “There is a willingness to pay and value, more than the public markets do today.”
Acquisitions remain the most common — and attractive — exit options for high-growth startups, said Jim Cassel, a founding partner of the firm.
“[Firms are] looking for an exit strategy. They have a life in which they’re supposed to put money out, harvest and liquidate. IPO isn’t that event. Because they have to liquidate stock over time,” he said.
Startups are similarly drawn to M&A. Chandirakanthan estimates that “a vast majority” exit through those vehicles.
But it isn’t uncommon for startups to toy with the prospect of an IPO as a vehicle to private equity. According to Cassel, some companies prepare the necessary materials for a public offering and intentionally let word get out.
“It implies [to private equity] that, ‘If you buy now, you’ll pay less than later,’” once the company goes public, he said. “And that may or may not be true. The public markets are fickle. It’s just conjecture.”
Looking ahead, a number of IPOs are likely in the pipeline for 2017 — but the status quo holds.
“M&A will be the exit for many companies,” Cassel said. “There is a private equity market that is flush with cash that is looking for companies that fit their ethos.”
Cassel Salpeter & Co.’s full 2016 Q3 technology investment activity report is available online.
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