12/22/2014 @ 10:12AM Forbes
The IPO Class Of 2015: After Alibaba, Is Uber The Next Blockbuster?
The years-long resurgence of the IPO market in the wake of the financial crisis has been marked by several trends, one of which is the regular appearance of blockbuster offerings. Since 2010, each year has included at least one deal that captured the market’s attention whether because of its size (Alibaba.com in 2014), its stumbles (Facebook in 2012) or its circumstances (General Motors GM -0.99% in 2010). Looking ahead to 2015, Uber is starting to look like it could be that blockbuster.
“Every year there’s been that one defining deal,” says Paul Bard, director of research at IPO-focused Renaissance Capital. There are other candidates for 2015 – Airbnb, Pinterest, Snapchat are among the 40 tech firms valued at more than $1 billion according to venture-capital tracker CB Insights – but to Bard, “Uber is the wildcard.”
Bard sees Uber — officially Uber Technologies — positioned for an IPO in the next 12-16 months. “If not 2015, then early 2016,” he says.
If the car-sharing app does hit the market in 2015 it will likely be faced with a market that is growing increasingly discerning with respect to new offerings. The past 12 months were the best for deals and dollars since 2000, but returns fell back toward long-term averages after a stellar 2013 and more than half the companies that debuted have fallen below their offering prices. (See “Alibaba Leads Big IPO Year, But Returns Slip.”)
Still, market participants say the appetite for new growth companies remains.
“We’ve never been busier,” says Neil Dhar, who runs the capital markets business at PwC. “I’m bullish about momentum. The good news is because there’s so much competition it’s a bit of survival of the fittest”
That upbeat view reflects a generally sanguine perspective that the IPO market will stay hot. If it does, some of the themes and companies below are likely to be featured.
Hot Wheels
Uber may go public in 2015, but it won’t be because it needs the money. The on-demand car company raised $1.8 billion in fresh funding at a $40 billion valuation in early December, including a $600 million investment from China’s Baidu , and had Goldman Sachs out pitching clients on a convertible debt offering that would drop another few billion into the company’s coffers. But both deals add to the roster of shareholders for whom a public offering is the likeliest opportunity to cash out. The Goldman-sold convertible deal is actually said to include a coupon that escalates if the company doesn’t conduct an IPO in the next four years.
It seems unlikely the car-hailing company gets that far without hitting the public markets. Bard thinks the offering could come in late 2015.
Not A Borrower, But A Lender Be
Modified Shakespeare lines aside, the success of lending platforms like OnDeck and Lending Club in December sets the stage for more activity in the space in 2015. Both had sparkling day-one debuts, rising 56% and 40% respectively.
Matt Harris of Bain Capital Ventures, an investor in OnDeck, says he’s been eyeing about a dozen companies in the space that could be earmarked for the public markets, given the lack of natural buyers. “The banks can’t buy these businesses and tech hasn’t shown interest in what would be quite a different model for them,” says Harris.
Now that both Lending Club and OnDeck have a public currency with which to do deals – Harris says Lending Club has an impressive “funding chassis” with the billions of dollars interested in funding unsecured consumer loans, which would make deals for lenders accretive – there may be some names that never reach the IPO stage.
Still, Bard highlights a handful of firms including the likes of Prosper, a peer-to-peer lending platform, and SoFi, a student loan financing operation, as potential 2015 debuts. Just recently, SoFi Chief Executive Mike Cagney told Forbes the company is aiming for a 2015 IPO.
Post-GoPro Perils
GoPro showed a real appetite for name-brand consumer devices more than doubling after its June IPO, and the forthcoming Apple Watch may go a long way toward finally bringing wearables to the fore in the way techies have been predicting for years.
Given that trend, the wearables market looks ripe for a move into the public market. Bloomberg reports fitness-tracking wristband company Fitbit has tapped Morgan Stanley to pursue a deal. Rival Jawbone, which also makes portable Bluetooth speakers, struggled to fill a funding round this fall, but could still be in play for an IPO depending on how investor expectations develop.
The Valuation Game
A potential complication, Bard points out, is a divergence in private and public market valuations. Bain Capital Ventures’ Harris agrees, calling 2014 “a nearly flawless year in the private markets, [but] hardly been flawless in the IPO market.”
Box is one company that got caught in that trap, as the timing of its public filing in March coincided with a revaluation of high-growth technology stocks. Expect the cloud storage company to try again in 2015.
Other companies that held off on potential 2014 deals include online marketing software firm Yodle and domain name seller GoDaddy, Triton Research notes in a recent report. One other, Good Technology, could look even more attractive in the wake of the recent hacking attack on Sony. The company makes security software applications for mobile devices, particularly crucial for businesses and governments dealing with sensitive data.
Restaurant Row
The chase for the next Chipotle Mexican Grill has been a fun parlor game for the past few years, with deals like Zoe’s Kitchen, Noodles & Co and Potbelly coming in and out of favor as buyers bet on fresh concepts with small footprints thriving through geographic expansion. In 2015 Shake Shack looks likely to join the ranks, given reports it has tapped bankers with an eye toward a $1 billion valuation.
Hotel-Killer Holdout
Airbnb would seem a natural fit for a 2015 IPO, given its $10 billion-plus valuation, but the company seems more inclined to pull whatever levels it can to hold off on a public debut. In October the Wall Street Journal reported the company was arranging a round of employee share sales that would bring in new investors at a $13 billion valuation.
Money Manager Migration
Coming up with ways for employees to get liquidity without an IPO is one of the creative efforts some companies have explored, but creativity isn’t limited to tech companies and venture capitalists. More and more, mutual funds and hedge funds that traditionally bought shares in and after initial public offerings have jumped the divide between public and private markets. Plenty of managers owned stakes in Facebook before its 2012 IPO and the trend has just grown more common since, including in Uber’s most recent fundraising.
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