Friday, October 21, 2011

Market Volatility

The financial markets were more buoyant earlier this year, hence all the IPOs. But then a fair amount of uncertainty, with a negative tone, set in, causing the markets to increase in volatility and become a less attractive option for those seeking to go public via IPOs. Less attractive does not mean the option was eliminated.

When the markets are buoyant they are reflecting optimism and thus, financing is more plentiful. As I've stated before, private equity firms and venture capitalists, among others, can take their companies public, providing them with more options and beginning the trickle down effect. When equity markets are optimistic, debt financing is also easier with investors more open to financing options that don't require myriad covenants (aka safety nets or provisions). Debt financing during this time typically comes with lower interest rates for the same debt that, in a more volatile market would require more.

So Groupon has registered for an IPO and will likely move forward with sales of its shares at a $12 billion valuation. That's down from the $15-$20 billion that it could have gotten had it been ready in April, May or June. C'est la vie. Personally, given how some of the other IPO shares have performed post-IPO, and given the earnings expectations, I think Groupon's $12 billion valuation is much more fitting.

Any thoughts? I'd love to hear them.

1 comment:

Dane Pymble said...

I think we are seeing a repeat of the .com Bubble of the late 90s. There will likely be a washout of all these web 2.0 businesses but I think Groupon will be one of the ones likely to survive given its domination of the group buying niche.

It's a little different though this time as a lot of the activity is happening away from the public markets and only the really significant companies such as Linkedin, Groupon etc are getting to IPO.

I think when every man and his dog is IPOing a Web 2.0 company that will be a good time to head for the hills!

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