IPOs stress IT health, not bubble
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(InfoWorld) - Though business demand for IT products remains moderate, IPOs point to a healthy sector that is instilling confidence among investors. But IT is not back to the days of the bubble. Gone are the days when companies issue IPOs on promises alone. "You need real products and services, tangible results," said Eric Gebaide, managing director of Innovation Advisors, an investment banking firm. Companies generally need about $50 million in revenue before going public, he said. The IPO market is better now than it has been for years, and IT has nabbed a good share of investor funds, according to an IPO survey issued this week by Thomson Financial and the National Venture Capital Association. In May, there were 11 IPOs in the U.S., more than for any month since October 2004. For the first five months of the year, the number of IPOs, and their dollar amount, hit their highest level since 2000, right before the dot-com bubble burst. Of the 33 IPOs so far this year, and the $5.1 billion they raised, IT's share lagged behind medical, health, and life sciences. But the biggest IPO was for a wireless communications company, MetroPCS Communications, with an offering that raised an initial $1.15 billion. Also, average performance for IPO companies so far this year is strongest in IT, where companies have realized a 13.9 percent increase from offer price to close, according to IPO survey. Medical, health, and life sciences IPO companies realized a 2.2 percent increase, and non-high tech sectors registered a 6.6 percent increase. Valuations are also up in general, to $156.7 million per IPO for the year so far, an all-time record. "Revenue growth and profitability are driving valuations up," said Gebaide. For IT, investors have seen eight to 10 quarters of solid revenue, he noted. Companies are more confident about financial forecasts, which also boosts confidence in tech, he said. An example this week was Texas Instruments's midquarter forecast Tuesday. It said second-quarter earnings would be $0.40 to $0.44 a share, compared with its prior estimate of $0.39 cents to $0.45 cents a share. Though the upper end of the forecast was pulled down, the midpoint of the forecast still aligns to the $0.42 per share predicted by analysts polled by Thomson Financial. The TI shares slipped on the news, but the major brokerages, which forecast good profit margins and strong product cycles for the company, reiterated their positive ratings on the company. All of this is happening in a market where corporate IT spending remains moderate. A recentÂ ChangeWave Research poll, for example, reported that the percentage of companies planning to increase their spending on technology has fallen to its lowest point in the last four years. But demand among consumers and interest in certain technologies is strong. For example, IDC this week raised its 2007 PC industry forecast. Vendors will ship 256.7 million units in 2007, a 12.2 percent increase from the previous year, it said. IDC had previously forecast a growth rate of 11.1 percent. Consumers were attracted by low prices on notebooks, Microsoft's Vista, and the new generation of dual-core chips, IDC said. For their part, venture capitalists are generally interested in Web 2.0, e-commerce, mobile communications and security technology, Innovation Advisors' Gebaide said.ADVERTISEMENTIBM Information On Demand 2006Industrial Industry Leaders, please join us at IBM's premier information management global event, IBM Information On Demand 2006, October 15-20, Anaheim, CA. More IBM business and technical solutions content in one place than ever before! Select from  over 800 sessions. Register today!
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(InfoWorld) - With the first six months of the year gone, IT companies are riding high in the markets, and mergers and acquisitions have helped stoke investor interest in technology. The tech-heavy Nasdaq Composite gained 7.8 percent in the first half. The day before the U.S. Independence Day holiday on July 4, the Nasdaq rose 12.65 points to close at 2644.95, a six-and-a-half year high. Most analyst firms are still predicting modest overall global IT spending growth of about 6.5 percent above last year. But strong corporate earnings, better-than-expected growth in certain sectors, and M&A activity are contributing to a sense of exuberance, especially in certain sectors. Both Gartner and IDC have recently raised predictions, for example, for PC shipment growth this year. Now comes news that M&A deals continue to experience a torrid pace. For the first six months of the year, 1,930 deals worth about $347 billion were reported, according to The 451 Group. While the number of deals declined slightly from last year, the dollar value skyrocketed about 50 percent from last year, according to a 451 Group report. About half the deals involved acquisitions by public companies, and half involved private equity companies. Also, the pace of M&A is accelerating, according to the report. After $95 billion in M&A deals in the first quarter, second-quarter M&A spending jumped to $252 billion. IT is getting a lion's share of M&A dollars. For example, in the first six months of the year, IT services deals amounted to about $94.7 billion, while software deals excluding storage and security companies amounted to $27.6 billion, according to 451 Group. These days, M&A activity is being seen as a healthy sign. That was not always the case. "PE (private equity) used to buy broken companies," noted 451 Group financial analyst Brenon Daly. But now there are various reasons why IT services and software companies are targets, he noted. "It's not a great time to be a public company," Daly said. For example, there is a lot of scrutiny on companies being brought to bear by Sarbanes-Oxley rules, he noted. Thus, there are a lot of willing buyout targets, especially among smaller companies, he said. IT services companies are popular targets because once the difficult sales cycle is accomplished, long-term contracts lock in revenue for a foreseeable period, Daly said. Software companies in mature markets may see new license revenue slowing down but have a solid business in maintenance revenue. Though 451 does not track telecommunications deals specifically (telecom M&A is included in its total tally, however), recent telecom deals have also excited the market. For example, AT&T's announcement FridayÂ it would buy carrier Dobson CommunicationsÂ for about $2.8 billion helped lift the Nasdaq to its high level earlier this week. M&A deals help boost IT investor interest in several ways, noted Daly. First of all, as companies are bought and taken off the market as targets, there are fewer companies to invest in, even as a liberal lending regime continues to stoke opportunity and interest. Also, M&A sparks a continual guessing game of Who's Next? Excited investors essentially place bets on companies they think will be the next to be snapped up. It's not all smoke and mirrors, though. Several quarters of healthy corporate earnings have given a solid underpinning to investor interest in tech. The earnings-report season is getting underway in the next few weeks, and industry watchers will get a sense of how the next six months will play out.
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Google Inc.'s public stock offering is a reminder of the perils and promise of the high-tech IPO market.
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Contrary to some published views, the Dutch auction process of Google&#39;s initial public offering (IPO) last week was a success for the internet search engine and its investors despite being undertaken in a &quot;horrendous&quot; market, a legal commentator has
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