Business Insight Zone

We talked about it earlier this week, and sure enough the dominoes have started falling in the IPO market. Early returns:

• Chemspec International Limited: Ehh.
• Duoyuan Global Water Inc.: Offered at $16/share, opened at $22.65, closed its first day of trading at $21.87. Nice work when you can get it.
• Medidata Solutions, Inc.: Offered at $14, opened at $18, but tapered off into the mid-$16 range. Not bad.

Meanwhile, some in the IPO business are predicting better times ahead. Case in point:

IPO Comeback Starting Now, Cleantech Investors Say

Mind you, in this case “ahead” means “in the next 12 months” rather than “really soon.” My hunch is that the next 12 months is a good range of time to be talking about for a real, steady, sustained flow of IPOs. I think there’s still too much volatility and uncertainty in the markets to expect a real surge within the next few months. We’ll see.

If the IPO market is a cornfield, the corn isn’t quite as high as an elephant’s eye — but it’s a far sight better than the measly crops we’ve had lately.

IPO preliminary filings this month: four, two of which are slated for $500 million each. Half a billion dollars isn’t a big IPO in normal times, but it’s a lot bigger than what we’ve been getting.

IPO market debuts on deck for this week: also four. If they all go ahead with their offerings, it will be the busiest week since . . . [digging through files] . . . May of 2008.

So, are we back on track for a healthy IPO market with some regular flow to it? I think we’re at least growing in that direction. But I’m not prepared to declare a successful 2009 harvest yet.

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Related posts:

• We need better phrasing than “tech IPOs.”
• A (relative) flurry of activity in the IPO market.
• Silicon Valley, the IPO drought, and the culture of innovation.

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Photo by Kevin Dooley, used under a Creative Commons license.

Here comes a rant, motivated by this TechCrunch article:

A Recipe Site Goes IPO, In Japan (Cookpad)

It seems that even in this downturn, there is still room for tech IPOs, at least in Japan. Cookpad [JP], the nation’s biggest site for sharing recipes . . .

SolarWinds was a true-blue “tech IPO” — they make software for enterprise network management.

But Cookpad, which is about to IPO in Japan, and OpenTable, which IPO’d on the NASDAQ last month, are actually consumer IPOs that do business via the Web.

This isn’t a nitpicky distinction. It’s a call for an end to sloppy thinking and reportage about non-technology-oriented companies that happen to do business online.

An easy example: Hoover’s has been doing business online for 15 years, and today we do the vast bulk of our business that way. That doesn’t make us a “tech company” like Cisco or HP or Symantec. We (and our parent company, Dun & Bradstreet) are a business information provider, and our peer group includes companies like Thomson Reuters and Dow Jones. The companies in our sector are increasingly technologically savvy, but that doesn’t make them “tech companies,” any more than Dell is a “financial company” because it’s long been savvy about investing its free cash flow.

Some companies — Amazon.com springs to mind — bridge consumer orientation and serious technology orientation, so it makes sense to talk about them in both contexts. But companies like Cookpad aren’t “tech companies” in any meaningful sense, and the fact that Cookpad — a profitable little outfit, from the looks of it — had a successful IPO doesn’t particularly speak to the prospects of the next SolarWinds or Rackspace to come down the pike.

Mind you: this isn’t to single out or pick on Serkan Toto, who wrote the TechCrunch piece that kicked off this rant. But Toto’s use of “tech IPO” reflects a broader anachronism that’s all too common in press coverage of the IPO market. This isn’t 1998, when the mere fact that a company did its business online was remarkable — and we need to get past that way of thinking if we want to take a clear-eyed look at the IPO market.

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Related:

• Hoover’s IPO Central
• A (relative) flurry of activity in the IPO market.
• Silicon Valley, the IPO drought, and the culture of innovation.

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Photo by Jacob Bøtter, used under a Creative Commons license.

It may be a case of spring fever.

Ever have one of those weeks when you work like crazy but finish very little?

*raises hand*

So, here are varied items of interest to launch you into the (U.S.) long weekend.

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>> Three IPOs in the span of a week? Pinch me! – And not just three IPOs, which makes for a tidal wave of activity relative to what we’ve seen lately, but three successful IPOs. DigitalGlobe, SolarWinds, and OpenTable all made a good showing in their market debuts between May 14 and May 21, which may encourage other would-be public companies to come forward (or, at least, encourage those with NamesLikeThis).

From the end of last summer until this spring, the IPO market has been mired in an awful slump — worse than anything in many years. But maybe we’re seeing the right baby steps as the market gets its feet back under it.

Related:

• A (relative) flurry of activity in the IPO market.
• Silicon Valley, the IPO drought, and the culture of innovation.

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>> Looking for work? Want to make a difference in the world? — Change.org has launched an initiative it calls Jobs for Change. Danny Moldovan, who heads the program, told me that “Our goal is to recruit more people into careers in service, and we’re currently working to build the largest database available of jobs in the nonprofit, government, and social enterprise sectors.”

The project is backed by several nonprofit groups and employs its own career advisers to offer advice to job-seekers. It also lists jobs in various categories. I know lots of job-seekers who are having to get creative with their career planning — who knows but what some of them will end up in the not-for-profit sector, earning a living  while trying to make the world a better place?

Related:

• JoblessJoe: when the going gets tough, the tough MAKE something.

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>> Some of the biggest turnarounds happen the fastest. — That’s the punchline of an article at Slate’s “Big Money” site that centers on Sergio Marchionne’s turnaround of Fiat. To be honest, the article could have benefited from a lot more detail on the turnarounds at Fiat, H-P, and Boeing, but the moral of the story still hits home:

Just as bad management can erase billions of dollars of value (think of the $36 billion that Daimler paid for Chrysler), good management can create it, and often more quickly than you’d expect. One difference between the best CEOs and the worst is that the good ones work at a faster pace. Murdering a major company can take many years of painstaking ineptitude. Successfully turning it around takes much more skill but sometimes less time.

Go back and look at other great turnarounds, e.g. Gerstner’s at IBM, or Jobs’s return to Apple. They don’t happen overnight — but they don’t take ten years, either.

How long are YOU taking to turn things around for yourself or your company?

Related:

• Mark Hurd’s 3-minute management clinic.
• The turnaround CEO — what to look for.

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>> Ursula Burns will succeed Anne Mulcahy as CEO of Xerox. — Three great things about this: (1) a woman is succeeding a woman running an old-school, business-to-business enterprise (I’m sure Tom Peters approves!). (2) Burns is the first African American woman to head a Fortune 500 company. (3) The succession comes as absolutely no surprise, since Burns has been groomed for this role for years.

Thinking of turnarounds, there was a time, not so many years ago, when Xerox needed one desperately. It got it, thanks to Mulcahy and Burns, and it looks to be in good hands going forward.

Related:

• CEO succession — successes and failures.

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>> When the going gets tough, the really tough grow market share. — Cisco has talked openly about its ambitions to “move with a speed nobody has ever attempted” into dozens of new areas. This piece from The Register talks about the networking giant’s grand design, which is founded in its existing expertise in moving huge amounts of data traffic across wired and wireless networks.

Mostly, I just love Cisco’s chutzpah. It could sit on its laurels, quietly dominating one or more areas of networking. Instead, it’s taking advantage of (a) the market downturn, (b) its own technical prowess, and (c) a monstrous pile of cash to elbow aside competitors in areas likely to grow rapidly for years to come.

Pulling it off will take some doing — but if any company is likely to do it, it’s Cisco.

Related:

• Disorganization Negates Talent.

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Photo by Brendon, used under a Creative Commons license.

Overall condition of the IPO market: still torpid.

Relative condition of the IPO market so far this month: boffo.

Last week came the market debut of online gaming company Changyou.com. Today we’ve got the IPO of online college Bridgepoint Education. Overnight we expect to see the debut of language-learning software maker Rosetta Stone. That makes April the first month since last July with three IPOs on U.S. markets, and three is more IPOs than we’ve seen cumulatively since last Thanksgiving. (For more details, see our IPO Central.)

All of these are modest deals, which is probably appropriate, given the queasy feelings that the equity markets have been inducing in investors lately. But at least there’s more stability and some positive movement in the stock exchanges over the past few weeks. That’s a lot more welcoming to would-be IPO debutants than the nasty swings of late 2008 and early 2009 were. Unless you’re a juggernaut like Visa or Google, you want to come to the market when you’re sure investors are ready to give you a favorable hearing.

My guess is that the IPO market will continue to pick up bit by bit in the coming months, but I’d also bet that 2009 will still be the lowest year for IPOs — in terms of money raised, number of deals, or whatever — for many years.

Thinking about what I wrote the other day about the connection between the IPO market and the startup culture of Silicon Valley, I wonder whether we’re seeing a tectonic shift, such that most middle-of-the-road companies will be satisfied with a solid market debuts that make them viable public companies, rather than the sorts of rock-star IPOs that have driven the hype cycle (and lots of instant fortunes) in the past.

If the days of the glamour IPO are over, I, for one, will not mourn.

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Update, Thursday midday – Ben Steverman of BusinessWeek weighs in with this well-reported piece:

• Are IPOs Slowly Making a Comeback?

(Caveat lector: the article quotes me.)

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Related:

• FT: Diminutive debuts to test IPO water
• WSJ: Rosetta, Bridgepoint IPOs Heat Up Market for New Stocks

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Photo of a fascimile of the Rosetta Stone by Brett Weinstein, used under a CC-Share Alike license.

Is the sun setting on the spirit of the Hewlett-Packard garage?

Yesterday I got to talk a bit with San Jose Mercury News columnist Chris O’Brien about the state of the IPO market and what it means for the culture of innovation in Silicon Valley. He used a couple of quotes from our conversation in this article:

Dwindling public companies means big changes in the valley

. . . The number of public companies in Silicon Valley fell for the eighth consecutive year in 2008, to 261. Forget the inflated dot-com peak of 417 in 2000. It’s also below the 315 the valley had in 1994, when the Mercury News started keeping track.

This is no longer a simple correction following a period of excess. This is now an unmistakable trend that represents the end of an era defined by a grand partnership between Silicon Valley and Wall Street. That alliance fueled a model for funding innovation that became the envy of the world. And now we have to come up with a new one. . . .

The column is well worth a read, and I’m glad I got to talk with O’Brien about his take on the situation in Silicon Valley. Although I’ve never lived there, I feel a connection to the place because I covered the microchip business during my first few years on the Hoover’s staff, and in fact back then I read O’Brien’s newspaper more than any other.

We were talking because O’Brien had read our IPO Scorecard for the first quarter of 2009 — which was, predictably, dismal. Sure, things are bad all over when it comes to IPOs (as we’ve discussed here plenty of times before), but O’Brien has an interesting take on why things are so bad for Silicon Valley.

My sense is that we’re seeing a winnowing period for both IPOs and the venture-capital firms that back them. Over time, the best of both types of company should do fine, but O’Brien is probably right that there’s a fundamental shift underway in the calculus that governed the relationship between Silicon Valley and Wall Street. When he and I were talking about it, I pointed out that the level of IPO activity we’ve come to see as normal has really only been going since the 1990s; now that I think of it, the modern venture-capital business isn’t much older.

What we’ve seen over the past couple of years tells me that the good VCs are willing to put high demands on their startups — nothing arcane, mind you, but the VCs are focused on funding companies with compelling technology, tight operations, and solid financial discipline. The probity of both VCs and startups should give them more flexibility in both the timetables and the avenues they choose for “exit events,” whether that means IPOs, acquisitions by the Ciscos of the world, or other financing options.

Regardless of what the future holds for the VC business for the IPO market (reasonable assumption: more pain before the good times return), I’m confident that something will fuel the process of innovation in American business — and the business of the world.

Hewlett and Packard joined forces in 1938, before the war effort had pulled the United States out of the Depression. They didn’t go public until 1957, but in the meantime they created a lot of value by bringing high-quality electronic equipment to market. Their gear was used for everything from Disney pictures to that same war effort.

The downturn we’re living through is bad, but it’s not as bad as the 1930s, and it seems to me that the force of entrepreneurialism is still strong in the world. Some of it happens within large corporations. Some happens along classic venture-backed lines. Some is bootstrapped.

However it comes to pass, ingenuity will out. The sun may set, but it rises again.

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Related posts:

• Hard Times are Good Times for Business Innovation.
• How much more of the hard times?

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Photo of the garage where Mr. Hewlett and Mr. Packard started their business by Peter Kaminski, used under a Creative Commons license.

If you’re going to make an IPO in this market,
you’d better be photoluminescent.
It’s dark down there.

Stop me if you’ve heard this one before: the IPO market stinks.

That’s the thesis of this BusinessWeek article on the subject, which quotes me, among others:

IPOs: No Deals on the Horizon*
The U.S. market for initial public offerings is “dead as a doornail,” with companies eager for capital stuck in limbo. What could spark a revival?

By Ben Steverman

“Dead as a doornail.” “Nonexistent.” “Abysmal.”** “Broken.”

Those are assessments of the market for initial public offerings, when new companies float their shares in the stock market. Just one U.S. company, an atypical IPO called Mead Johnson Nutrition (MJN), has dared make its stock market premiere so far this year. [...]

Worth a read if you care about the state of things in the IPO world.

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* Dunno if this was the intent of the BW headline writer, but I like the veiled reference to U2’s just-released album.

** I was the one who said “Abysmal.”

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Image by Derek Hatfield, used under a Creative Commons license.

As you’ll know if you’ve been reading this blog for any time, it’s been slim pickings in the North American IPO markets for a while now. But last Wednesday the Bristol-Myers Squibb spinoff Mead Johnson Nutrition Company braved the waters when it began trading on the NYSE.

It’s only been a few trading days, but so far, so good:

While the S&P 500 has declined 5 percent, MJNC has climbed more than 7 percent. That’s hardly gangbuster territory, and I would not predict any kind of go-go IPO environment to develop during 2009, but at least it’s something.

It helps that MJNC, which makes Enfamil and other nutritional products for infants and children, benefits from well-established name brands, a powerful parent company (BMS still owns most of MJNC), and annual revenues north of $2 billion. Clearly these aren’t benefits that will be shared by many of the companies that would like to start trading publicly. But given the long drought in the IPO world, MJNC’s debut represents at least a light shower of good news.

Not much talk here about the IPO market lately . . . because there hasn’t BEEN much of an IPO market lately. So when I saw on IPO Central that not one but two scrappy little outfits — Medidata Solutions and OpenTable — have filed to make public offerings, I chuckled, but I also had to admire the chutzpah.

Mind you, there’s many a slip betwixt filing and offer, so who knows if these companies will ever actually go public, much less when.

Further IPO posts to come as events warrant . . .

We have now exited the Grand Canyon of IPOs thanks to the market debut of Grand Canyon Education, the parent of online college Grand Canyon University. As our IPO Central pages indicate, this marks the first IPO on major U.S. markets in more than 100 days — since poor Rackspace came to the market with a solid financial track record and got spanked for its troubles.

Think about what’s happened in the financial world in the past 100 days, and it’s not surprising that companies looking to debut (not to mention their underwriters) would have stayed away from the market in droves. Given the way that Grand Canyon’s offer price was lowered and lowered again before it ever debuted, and given the indifferent-at-best response of the markets, this offering doesn’t augur well to provoke many more IPOs during the rest of 2008.

Oh, and since Grand Canyon’s offering was for a mere $126 million — paltry by IPO standards — it also won’t be moving the needle much for the dollar value of deals in 2008, which has seen both the number and size of IPOs decline radically from the previous four years.

The motto for this IPO market might be the same as that for cellar-dwelling teams in sports: “Wait ’til next year.”

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Related posts:

• Hoover’s IPO Scorecard for Q3, or, Market Carnage.
• The global IPO market, such as it is.
• Weakness prevails in the IPO market.
• Rackspace’s IPO — what it tells us about the IPO market.

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Photo by Barbara L. Slavin.