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EisnerAmper Blog

Technology and Life Sciences Blog

Trends Seen in the Box IPO and Other Recent Tech IPOs

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April 15, 2014

By Marc Fogarty, CPA, CFE 
 
Fogarty,MarcBox, an online file management company, is following a trend of several other companies who filed for an IPO within the past 12 months. There are many similarities in these companies--let’s take a look at what these similarities are and what they may mean for other companies thinking about an IPO.

Box, like Twitter, confidentially filed for an IPO. As I mentioned in an early blog about the JOBS Act and the confidential filing of IPOs, this is an attractive option that might be driving companies toward IPO as a source of funding.  With a confidential IPO, a company can keep much of its sensitive financial information, which a competitor like Google or Microsoft might want to see, out of the public eye until shortly before shares begin to trade.

Another theme that is pervasive with the latest Tech IPO is high valuations with low to nonexistent profit margins. Box was valued at $2 billion in spite of lack of profitability and the company’s regulatory filing stating, "We do not expect to be profitable for the foreseeable future."

Box has heavy competition in the marketplace with Google, Amazon and DropBox, but it is interesting to note that 40% of Fortune 500 companies are already using Box.  While Box is depending on future cash to expand its services and offerings, it may be easier for cash-rich companies like Google and Amazon to quickly catch up.

Another point of interest is that Box is another tech company using the NYSE, rather than the NASDAQ, but I see this choice as a possible marketing move.  The NASDAQ symbols are 4 letters and NYSE are 3 or less and since the company’s name is “Box” it may have wanted to preserve that branding.

Between the confidential IPO filing, the high valuation without reporting a profit, heavy competition and choosing the NYSE over the NASDAQ, BOX seems to be following the recent trend of other Tech IPOs. Many are thinking, is this all leading up to another bubble burst? That will be the focus of my next blog. 

Is Airbnb Preparing for an IPO?

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April 9, 2014

By Marc Fogarty, CPA, CFE
 
Fogarty,MarcAs I’ve mentioned in previous blogs, the tech market is hot right now. Airbnb is another company on the potential IPO watch list. The company enables people to rent out their home, apartment, or boat -- or even just a room in their house -- to travelers. Airbnb is valued at nearly $10 billion and the recent round of private equity financing being led by TPG Capital gets them closer to an IPO in terms of public perception.

It is likely that the private equity firm’s reporting requirements will be similar to public filings in terms of quarterly reporting, board of directors meetings and the like.   Therefore, taking the next step and filing for a public offering, which some predict could be sometime this year, may be a smoother transition.
 
The rise of the ‘share economy,’ which Airbnb is betting will continue in popularity, could be an indicator of the future success of the six–year-old company.  An IPO could be successful if regulators do not force similar standards that hotels are held to.  If they do, then Airbnb may not be an attractive alternative to hotels, and their appeal to stock market investors might change as well. 

What I find most noteworthy about the Airbnb story is the very high valuation for a company that is a ‘match maker’ of sorts. Many are questioning if the tech market is in a bubble that could burst, but for now, it’s no wonder why business owners are choosing to take advantage of a ripe market.  

The JOBS Act and Confidential IPOs

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April 3, 2014 

By Marc Fogarty CPA, CFE  

Fogarty,MarcTwitter, GoPro, Box and a few others are making news headlines with their confidential IPOs. Could the recent surge in confidential IPOs be a sign that the Jumpstart Our Business Startups Act, also known as the JOBS Act, is encouraging small to midsize companies to test the public market? 

For many start-up and small companies seeking to raise capital, the confidential IPO is an appealing option. By filing under what people reference as a "confidential" or "stealth" IPO, a company can keep much of its sensitive financial information, which a competitor might want to see, out of the public eye until shortly before shares begin to trade.

Since I work with many small and start-up life sciences and technology companies who are using the confidential IPO filing process, I have had people ask me, “If the JOBS Act wasn’t here, would these companies still be filing for an IPO?”  Unfortunately, this is like the age old question – which came first the chicken or the egg? You’ll never know which came first. What I do know is there are many other factors in determining whether a company is ready for an IPO. 

If your company is considering entering the public market, I encourage you to read our recently published blog series, “Is Your Private Company Considering Going Public? Steps to Consider When Bringing Your Private Company to IPO.”  This blog series addresses many common questions including how to determine whether the timing is right for a company to seek an IPO as well as the pros and cons of becoming a public company. 

U.S. Tech IPOs Continue to Sizzle with Alibaba Choosing U.S. Stock Exchange

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March 31, 2014

Fogarty,MarcBy Marc Fogarty CPA, CFE 

The Alibaba Group, an internet marketing and technology company operating primarily in the People’s Republic of China, is choosing to become a public company on a U.S. stock market exchange, and choosing not to be listed in the Hong Kong exchange (at least for the time being).  The company said that the move to the U.S. is to “…make us a more global company and enhance the company's transparency, as well as allow the company to continue to pursue our long-term vision and ideals.”  This is thought-provoking since there has been a debate about the rules and regulations being comparatively stringent in the U.S. In the past, there have been many companies choosing to go overseas. Perhaps this 'reverse decision' is an indication that international opinion is moving toward the support of U.S. GAAP as the superior set of accounting standards.
 
The biggest headline surrounding the Alibaba IPO is that the valuation is expected to be around $130B, which is one of the highest valuations for any IPO, if not the highest ever.  It is also noteworthy that six major banks are expected to be involved, which clearly shows that while the banks are excited about the potential of this IPO, there is an agreed upon acceptance of the need to diversify and make sure no single bank is left with the majority of the risk. Estimated fees for the public offering could reach $150M, which certainly will keep a lot of bankers, lawyers and accountants gainfully employed.

Whether or not the Alibaba IPO comes to fruition, it's a clear indication that U.S. tech IPOS are continuing to gain attention and high valuations. We'll keep you posted!

Mt. Gox Highlights the Need for Regulation and Controls for Bitcoin

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March 28, 2014
 
By Marc Fogarty, CPA, CFE

Fogarty,MarcWith the collapse of the largest Bitcoin exchange, Mt. Gox, there is a mix of opinions as to how to handle the oversight of Bitcoin’s digital currency. A business that is unregulated and lacks internal controls has the potential for fraud and financial loss to those who use it. With a bank closure, a person can go to the FDIC; but with an unregulated investment like Bitcoin there is no one to complain to or get recompense from should it fail. 

Bitcoin supporters have long touted the financial safety and affordability of the automated technology that controls the payment system. But, after the breakdown of Mt. Gox, some supporters have acknowledged that the Bitcoin system may benefit from human auditors and regulators who can perform oversight to help prevent a similar crisis in the future.  Coinbase, who enables buying, using and accepting Bitcoin, announced they plan to hire independent auditors, and they recently published a “security audit” to show users how Bitcoin is stored.
 
However, regulation may go against the grain of Bitcoin supporters who mistrust traditional financial institutions and their national-based currency. Many countries have experienced a financial crisis since 2007 and Bitcoin’s appeal is that the transactions are not tied to any country’s currency, people do not require banks to exchange and there are no transaction fees.
 
It will be interesting to see how this story continues to evolve and whether Bitcoin exchanges will eventually embrace regulation and internal controls to ensure consumer protection. With such security in place, it could potentially help build the Bitcoin customer base.   

WhatsApp Waited for the Right Buyer and It Might Result In a Bigger Payoff

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March 25, 2014

By Marc Fogarty CPA, CFE

Fogarty,MarcFacebook’s recent offer to buy WhatsApp for $16 billion is not only unusual because of its high price tag, but because of both companies’ claim that the  synergy between the two companies is the focus behind  the deal. Rather than a focus on the big payoff, there appears to be a shift in the mindset of the owners of these technology companies that’s worth considering. 

Let’s look at an analogy of a family selling their house that they designed and lived in for several years. They have a fabulous mansion that’s in immaculate condition and the owners think they shouldn’t have any problem selling for their high asking price based on their valuation. Soon they discover that only a certain number of people can afford this type of house and, beyond that, each buyer has their own desires as to what to do with the property. For example, one buyer is a developer who just wants the land and another buyer is an extended family with a need for lots of room. Let’s say both buyers are offering the same price. The sellers might not want to sell to the buyer who just wants the property and is going to tear the house down. They want the property to go to the family who will take care of and appreciate the home. 

Should you walk away from a business acquisition offer if you don’t like the direction they want to take your company? Matching buyers and sellers is never easy and that’s a tough decision to make. As noted above, WhatsApp, a company with just 55 employees, originally turned down a $10 billion offer from Google. It's speculated that Google was going to absorb WhatsApp into Google's giant conglomerate of interests, but Facebook is willing to let WhatsApp continue to operate as a separate entity. And even though a company limits itself in potential buyers with a higher price, it seems to have paid off in this case because WhatsApp knew what they wanted – to keep their product and their company structure intact.
 
Jan Koum, a co-founder of WhatsApp, was quoted in a recent NY Times article as saying, “Selling the company is easy.… It happens in Silicon Valley all the time…. That doesn’t make you special, it doesn’t make you unique, it doesn’t make you all that great.” 

The mindset of these tech owners appears to be different. Maybe they’re holding out for something more than money. Only time will tell if this new business attitude will be successful. 

Does the Facebook WhatsApp Deal Have You Thinking “What’s My Company Worth?”

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March 24, 2014 

By Marc Fogarty CPA, CFE  

Fogarty,MarcYou’re not alone! WhatsApp, a mobile phone application developer, received a $10 billion offer from Google and… they turned it down. And then, to the industry's surprise, Facebook upped the ante and put a $16 billion offer on the table.
 
With the news of this high-profile proposed acquisition, many business owners are reconsidering what they think their company is worth, and whether the time is right to court a potential buyer. Some may see the WhatsApp deal as an economic indicator that buyers in the technology sector are optimistic and willing to raise the stakes, and the potential value of companies might be on the rise. Is your company worth more than you thought? 
 
Consider an important factor: The higher your asking price is for your company, the more limited your market will be for a buyer. For example, in the case of WhatsApp, only a certain number of companies can afford to buy a company in the billion-dollar range. And within that group, each purchaser will have their own desires as to what they want to do with the property once they buy it. If the owner is unconcerned with what happens to the company after the sale, then the latter consideration is a non-issue. But, in the case of the Facebook proposal to acquire WhatsApp, both companies claim that it wasn’t about the money, but a synergy between the two companies.

The negotiation between a buyer and a seller will be based upon many different factors, from the business' valuation to the seller’s motivation for selling. So, does the recent Facebook and WhatsApp deal have an effect on your asking price? It is true that public companies in the technology and life sciences sectors are “booming,” but a realistic business valuation should be carefully conducted rather than choosing a price tag based on a reaction to the unusual deal between Facebook and WhatsApp.

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