What's the Best Way to a Billion: M&A or IPO?
Unless you’ve been living under a rock for some time, you’ll recall the exchange in The Social Network between Sean Parker, Mark Zuckerberg and Eduardo Saverin: “this is no time to take your chips down. A million dollars isn't cool. You know what's cool? A billion dollars.”
If you’re an entrepreneur or investor with audacious plans and ambition - it's on your mind. What’s the best way to a billion dollars? Is it through an initial public offering or an M&A sale transaction? These are good questions to have to ask yourself if your business is growing fast and you’re meeting milestones, gaining customer traction and building on revenue and earnings.
On the M&A side of the equation, we have large technology companies including the likes of Google, Microsoft, IBM, Research In Motion and Apple that have hordes of cash. They are committing parts of their war chests to acquisitions. The growth in M&A from these and other companies is motivated by a number of factors. Most of these companies are caught in the cycle of almost constant product and service innovation and change. Many see the acquisition of innovative companies as a means to more efficiently grow their businesses – either as a supplement to or in substitution for internally generated innovation. Many of these companies are looking further afield in an effort to build their workforce – often referring to a ‘war for talent’ as they seek out additional experienced skilled teams and, in particular, engineers.
On the other side of the equation, despite the overall economic turmoil, we have seen a growing stream of high profile IPOs completed over the course of 2011. Companies such as LinkedIn, Pandora and Groupon are all now listed in the United States. Others such as Zynga and Yelp are currently in registration and now we have rumours (again) of a Facebook IPO in 2012. These are all (or, all going according to plan, will be) new multi-billion dollar market cap public companies. Question the merits of an investment in these newly-public technology companies and critique some of the investment banking and other tactics involved if you wish. At the end of the day, however, these IPO have or will result in a select group of new billionaires from among the cast of entrepreneurs and investors involved.
Recent Canadian Experience
The vast majority of Canadian exits are by way of M&A and Canadian businesses have been well-positioned to take advantage of the M&A trends described above. So far in 2011 we have been fortunate to be part of many of the high profile Canadian M&A success stories out there. These include (to name but a few) the sale of Radian6 to Salesforce.com, the sale of Pushlife to Google, the purchase of Five Mobile’s assets by Zynga and most recently the sale of Kobo to Rakuten.
IPOs in Canada are generally much smaller than the high profile US public offerings described above. Most Canadian technology companies will acknowledge that they don’t look to the Canadian public markets as a complete answer to unlocking shareholder value. It is often one further step along the path to liquidity. While none of the high profile public offerings described above involve Canadian companies, there has been some IPO activity in Canada. Both Toronto-based NexJ Systems and Vancouver based Avigilon Corp. completed IPOs in 2011 and others are anticipated going forward if markets cooperate.
Join Us for the Debate
On December 1, 2011 at the Canadian Innovation Exchange in Toronto we have organized a great panel discussion with (surprise) the title “The Best Way to a Billion: M&A or IPO”. As moderator, I will be seeking answers to these and other questions from a select group of bright lights in the Canadian technology community:
- Bill Tatham is currently the Founder and CEO of NexJ Systems but has also had past success as the Founder, Chairman and CEO of Janna Systems which he took public and ultimately sold to Seibel Systems.
- Jeff White was most recently the CFO of Radian6 which was sold earlier this year to Salesforce.com and before that he has had past success as part of the senior management teams who founded, built and sold iMagicTV and Q1 Labs.
- Scott Munro is currently a Founder and Managing Director of Pagemill Partners, a Silicon Valley-based investment bank, where he works with a broad range of M&A and finance mandates for technology businesses but he too has a history of success as an entrepreneur in building successful technology businesses including Savoir Technology Group.
Each has unique knowledge and first hand experience in planning for, managing and executing successful M&A and IPO transactions both in Canada and the United States. I will share some of their insights here for those of you who are not able to be at the event.
Canadian investment climate entrepreneurs exit strategy global investment climate growth strategy innovation investment banking investors IPO M&A trends presentation annoncement strategy