Technology IPO Perspectives.ppt by censhunay

VIEWS: 13 PAGES: 23

									                                                CONFIDENTIAL




PRESENTATION TO:




                   Annual Venture Capital Ecosystem Meeting
                                Technology IPO Perspectives
                                                October 20, 2003
Table of Contents

  1   Historical IPO Perspectives



  2   Current IPO Perspectives



  3   The Global Settlement and IPO Underwriting
1   Historical IPO Perspectives




TECHNOLOGY IPO PERSPECTIVES / October 20, 2003   3
Historical IPO Perspectives


  By the numbers since 1980
       >    1,804 technology companies have gone public in the U.S.



       >    $118 billion in total capital raised



       >    33% have been acquired



       >    14% have gone bankrupt or liquidated



       >    41% have appreciated in value since IPO date(1)



       >    41 have been “ten baggers”(2)



       >    May 2001 – date of the last telecom equipment IPO




 (1)       Determined at acquisition date if acquired.
 (2)       “Ten-bagger” defined as lifetime stock price appreciation in excess of 1,000%.


 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                             4
                        Historical IPO Perspectives


                          Number of IPOs
                           (January 1, 1980 – December 31, 2002)
                                                 PC Revolution                            Retrenchment                Networking                  Internet Revolution                       Retrenchment
 Cyclicality of IPOs            350
follows the evolution
 of new industries                                                                                                                                                          308
                                300
    and broader
 economic themes
                                250
                                                                                                                                                                                   221

                                                                                                                                                       203
                                200



                                                                                                                                                148
                                150
                                                                                                                                                              129



                                100                                                                                               95
                                                            82                                                                                                       85
                                                                                                                                         80

                                                                                                                           56
                                                                                                                    46
                                  50
                                              33                                 36     34
                                                                   24                                 27     23
                                                                                               17                                                                                         19     16
                                       13            12                   13
                                                                                                                                                                                                         8
                                   0
                                       1980

                                              1981

                                                     1982

                                                            1983

                                                                   1984

                                                                          1985

                                                                                 1986

                                                                                        1987

                                                                                               1988

                                                                                                      1989

                                                                                                             1990

                                                                                                                    1991

                                                                                                                           1992

                                                                                                                                  1993

                                                                                                                                         1994

                                                                                                                                                1995

                                                                                                                                                       1996

                                                                                                                                                              1997

                                                                                                                                                                     1998

                                                                                                                                                                            1999

                                                                                                                                                                                   2000

                                                                                                                                                                                          2001

                                                                                                                                                                                                 2002

                                                                                                                                                                                                        2003
                          Source: Securities Data Corporation.

                          TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                                                                                       5
                        Historical IPO Perspectives


                          Average IPO Market Value and IPO Size
                          (January 1, 1980 – October 13, 2003)
                                                                  PC Revolution                         Retrenchment                Networking                  Internet Revolution                        Retrenchment
   Average IPO                             $1,000
 market value and
size have steadily                          $900

   increased as
                                            $800
investors demand
 greater liquidity                          $700
  and companies
with greater critical                       $600
                           (in millions)




       mass
                                            $500


                                            $400


                                            $300


                                            $200


                                            $100


                                              $0
                                                    1980

                                                           1981

                                                                   1982

                                                                          1983

                                                                                 1984

                                                                                        1985

                                                                                               1986

                                                                                                      1987

                                                                                                             1988

                                                                                                                    1989

                                                                                                                           1990

                                                                                                                                  1991

                                                                                                                                         1992

                                                                                                                                                1993

                                                                                                                                                        1994

                                                                                                                                                               1995

                                                                                                                                                                      1996

                                                                                                                                                                             1997

                                                                                                                                                                                    1998

                                                                                                                                                                                           1999

                                                                                                                                                                                                  2000

                                                                                                                                                                                                         2001

                                                                                                                                                                                                                2002

                                                                                                                                                                                                                       2003
                                                                                                       Average IPO Market Value                        Average IPO Size




                          Source: Securities Data Corporation.
                          Excludes Accenture and Agere IPOs in 2001.
                          TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                                                                                                      6
                        Historical IPO Perspectives

                          Average Number of Underwriters per Technology IPO
                          (January 1, 1980 – October 13, 2003)
                              4.5
Increase in deal size
  and competitive
                              4.0                                                                                                                                             3.8
  dynamic among                                                                                                                                             3.7
 investment banks                                                                                                                                                 3.4
                              3.5                                                                                                                                       3.3
 has increased the                                                                                                                                    3.2

average number of
                              3.0                                                                                                               2.9
underwriters on an
                                                                                                                                          2.6
        IPO                                                                                                                         2.5
                              2.5                                                                                             2.4
                                                                                                      2.3
                                                                                    2.1                     2.2
                                                                                                2.1                     2.0
                                    2.0                     2.0                                                   2.1
                                                1.9                           2.0
                              2.0                                                         1.9
                                                      1.8               1.8
                                          1.7
                                                                  1.5

                              1.5



                              1.0



                              0.5



                              0.0
                                    1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003




                          Source: Securities Data Corporation, EquiDesk.

                         TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                                                             7
Historical IPO Perspectives

 IPO Darwinism

    >    Like the 1983 NFL quarterback class (Elway, Kelly, Marino), the 1986 IPO class yielded
         exceptional value

    >    Approximately $400 billion of value creation from 10 companies that went public in 1986




    >    Lesson: As industry leaders emerge, sectors consolidate and disproportionate value is
         ascribed to #1

           •    Phase 1: Technology emerges

           •    Phase 2: Several companies compete to grow the technology and market

           •    Phase 3: Leader emerges

           •    Phase 4: Industry consolidates

           •    Phase 5: Leader captures disproportionate value




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                    8
Historical IPO Perspectives

 Technology Sector is an IPO Leader

    >     Despite a poor environment for IPOs, technology has increased its share of total IPOs in 2003
          from 2002

    >     Given the emerging growth characteristics of technology companies, the technology sector is
          well suited to capture a significant portion of the IPO total




      2002 Sector Breakdown (by # of IPOs)                            2003 Sector Breakdown (by # of IPOs)
                      Other      Technology                                             Other
                      14%           9% Media/Telecom                                     6%
                                                                          Real Estate              Technology
                                              1%                             12%                      24%
        Real Estate
           5%

                                                                   Industrials
    Industrials                                                       6%
                                                    Financial
       3%
                                                   Institutions
                                                      27%
                                                                  Healthcare
                                                                                                           Media/Telecom
                                                                     6%
                                                                                                                6%
     Healthcare
       19%
                                                                        Consumer
                                                                           9%
                                          Energy
                                                                                                 Financial
                                           1%
                              Consumer                                                          Institutions
                                                                                                   31%
                                21%



  Source: EquiDesk.

 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                   9
Historical IPO Perspectives

 2003 IPO Observations
    >       Eight technology IPOs completed since June 2003

               •     Financings occur in brief windows of opportunity

    >       Average post-IPO market capitalization was $530 mm – with the smallest at $173 mm

    >       All issuers were profitable in 2003 and have visibility into 2004

    >       Issuers had limited to no exposure to telecom carrier capex

    >       Stocks have performed well – up 49% on average

               •     In difficult financing environment, higher levels of scrutiny are placed on those that can
                     go public
                                   Gross         Stock Price       %             Market Cap          Estimated EPS       2003E P/E         2004E P/E
 Date   Company                   Proceeds    @ IPO    Current     +/-        @ IPO      Current     2003     2004     @ IPO Current     @ IPO Current
 9/23   AMIS Holdings, Inc.       $   600.0   $ 20.00   $ 19.90   -0.5%   $ 1,437.3      $ 1,430.1       NA       NA      NA       NA       NA      NA
 9/18   SigmaTel                      150.0     15.00     23.12   54.1%       504.0          776.8       NA       NA      NA       NA       NA      NA
 7/30   NetGear                        98.0     14.00     17.24   23.1%       380.8          468.9     0.34     0.54    41.2x    50.7x    25.9x   31.9x
 7/23   Ipass                          98.0     14.00     23.83   70.2%       821.8        1,398.8     0.26     0.41    53.8x    91.7x    34.1x   58.1x
 7/16   Intervideo                     39.2     14.00     17.85   27.5%       173.6          221.3     0.66     1.00    21.2x    27.0x    14.0x   17.9x
  7/9   Digital Theater Systems        65.3     17.00     30.00   76.5%       222.7          393.0     0.70     0.84    24.3x    42.9x    20.2x   35.7x
 6/12   FormFactor                     84.0     14.00     26.92   92.3%       462.0          888.4     0.17     0.41    82.4x   158.4x    34.1x   65.7x
 5/12   iPayment                       80.0     16.00     23.85   49.1%       235.2          350.6     0.84     1.05    19.0x    28.4x    15.2x   22.7x
        Average                   $ 151.8                         49.0%   $     529.7    $   741.0                      40.3x   66.5x     23.9x   38.7x

                                   Gross         Stock Price       %          Enterprise Value       Estimated Rev.    2003E EV / Rev    2004E EV / Rev
 Date   Company                   Proceeds    @ IPO    Current     +/-        @ IPO      Current     2003     2004     @ IPO Current     @ IPO Current
 9/23   AMIS Holdings, Inc.       $   600.0   $ 20.00   $ 19.90   -0.5%   $    1,587.3   $ 1,580.1     NA       NA        NA       NA       NA      NA
 9/18   SigmaTel                      150.0     15.00     23.12   54.1%          414.0       686.8     NA       NA        NA       NA       NA      NA
 7/30   NetGear                        98.0     14.00     17.24   23.1%          290.8       378.9   287.0    336.0      1.0x     1.3x     0.9x    1.1x
 7/23   Ipass                          98.0     14.00     23.83   70.2%          707.8     1,284.8   136.0    190.0      5.2x     9.4x     3.7x    6.8x
 7/16   Intervideo                     39.2     14.00     17.85   27.5%          120.6       168.3    60.0     76.0      2.0x     2.8x     1.6x    2.2x
  7/9   Digital Theater Systems        65.3     17.00     30.00   76.5%          178.9       349.2    51.5     68.0      3.5x     6.8x     2.6x    5.1x
 6/12   FormFactor                     84.0     14.00     26.92   92.3%          352.0       778.4    92.0    134.0      3.8x     8.5x     2.6x    5.8x
 5/12   iPayment                       80.0     16.00     23.85   49.1%          237.9       353.3   215.0    257.0      1.1x     1.6x     0.9x    1.4x
        Average                                                                                                          2.8x    5.1x      2.1x    3.7x


 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                                                     10
Historical IPO Perspectives

 SigmaTel’s IPO Case Study

            Critical Mass (approximately $20 million quarterly revenues)`

            High quality customer relationships

            Significant growth in targeted end-markets

            Profitability in year of issuance

            Strong visibility at least one-year forward (period that the valuation will be based upon)

            Potential for core technology to serve additional markets in the future

            Experienced management team with proven track record




        Filing                           Marketing             Pricing          Current
    Mid June 2003                  Early September 2003      (9/18/03)        (10/13/03)
  $350 - $400 million                $410 - $470 million    $504 million      $799 million


                              Increased 32% on the first day of trading


                                             Currently up 54%



 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                  11
2   Current IPO Perspectives




TECHNOLOGY IPO PERSPECTIVES / October 20, 2003   12
Current IPO Perspectives

 2003/2004 Outlook
    >         Downsizing of the past 3 years has led to significant operating leverage

    >         Positive Qtr/Qtr revenue and earnings growth in Q1 and Q2, expected for Q3

    >         Equity fund flows positive every month since April

                                                     Domestic Equity Funds Flow
                        $10.0

                                                                               $7.7
                         $8.0      FY 2002:     ($27.3B)                                $6.9
                                   FY 2003:     +$20.7B                                                   $6.0
                                                                                                 $5.7
                         $6.0
                                                             $4.3
                         $4.0                                         $3.2

                         $2.0
        (in billions)




                         $0.0


                         ($2.0)
                                  ($2.0)            ($1.9)

                         ($4.0)


                         ($6.0)


                         ($8.0)


                        ($10.0)            ($9.2)


                        ($12.0)
                                  Jan-03   Feb-03   Mar-03   Apr-03   May-03   Jun-03   Jul-03   Aug-03   Sep-03


 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                    13
                        Current IPO Perspectives

                         2003/2004 Outlook (continued)
                            >        Investors are cautious when valuations fluctuate dramatically, making IPOs difficult to
                                     accomplish
 Extreme levels of
volatility have given                   Percentage of Trading Days per Year NASDAQ Moved +/- 2% in One Day
  way to greater             60%
      stability


                             50%




                             40%




                             30%




                             20%




                             10%




                                0%
                                       1990   1991        1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003
                                                                                                                                       YTD
                          Source: Wall Street Research.

                         TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                       14
Current IPO Perspectives

 2003/2004 Outlook (continued)
    >        Strong performance of 2003 IPO class

    >        Interest rates remain low

    >        IPO calendar beginning to build

              •   There are currently 61 IPOs filed with the SEC – 10 of these are technology companies

                                     Current Sector Breakdown of IPO Backlog1
                                                   ($7.1 Billion)
                                                  Other                           Technology
                                                  12.5%                             14.6%



                               Real Estate                                                     Media/Telecom
                                 8.3%                                                              4.2%


                            Industrials
                              2.1%


                                                                                                   Financial
                                                                                                  Institutions
                                                                                                    18.8%


                                Healthcare
                                 22.9%

                                                                                      Energy
                                                                  Consumer             6.3%
                                                                   10.4%
         Dealogic; IPOs filed/ revised within the last 180 days, current amount filed greater than $30mm.
  1Source:

  By number of transactions.
 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                  15
Current IPO Perspectives

 2003/2004 Outlook (continued)
    >    Since 1980, every ten years significant new technologies have emerged



           •    Early to mid 1980s – PC



           •    Mid 1990s – Internet



           •    ?? Mid-2000s – Broadband connectivity and mobility utilizing cost-effective
                infrastructure




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                               16
Current IPO Perspectives

 What are Company Metrics for an IPO?



             Critical mass – at least $100 million in revenue


             Demonstrated momentum through quarterly sequential revenue and earnings growth


             Profitability in year of issuance


             Good visibility one year forward (the period valuation will be based upon)


             Product and customer diversification


             Experienced management




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                           17
Current IPO Perspectives

 What Can Change Our Positive Bias?
    >    Earnings momentum focus will shift from margins to revenues by early to mid-2004; lack of
         quarter/quarter revenue growth




    >    Jobless recovery restricts economic growth




    >    A few lesser quality companies capitalize on the IPO window and subsequently underperform




    >    Another shock to global geopolitical events




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                      18
3   The Global Settlement and IPO Underwriting




TECHNOLOGY IPO PERSPECTIVES / October 20, 2003   19
The Global Settlement and IPO Underwriting

 Underwriter Selection and Pre-Marketing
    >    Banker / Analyst diligence proceeds on a dual-track

           •    Bankers cannot ask an Analyst to visit a company

           •    Analysts and Bankers may not attend the same meetings with companies

           •    No discussion of anticipated equity rating is permitted

    >    Research Analyst “Teach-Ins” to salesforce

           •    Viewed as an education opportunity, not as a sales or marketing opportunity

           •    Can discuss business fundamentals and information contained in prospectus

           •    May discuss the Analyst’s financial estimates

           •    May NOT comment on the transaction structure or pricing

           •    Bankers may NOT attend Teach-In’s

    >    Management Presentation to the salesforce

           •    Analysts may NOT attend (permitted to view presentation from a different location)

           •    Bankers and ECM may attend

           •    Analyst estimates may NOT under any circumstances be announced or distributed




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                      20
The Global Settlement and IPO Underwriting

 Marketing
    >    Roadshow Preparation

           •    Analysts may NOT participate in the preparation of, contribute to, comment on, or
                review the roadshow presentation

           •    Bankers may NOT solicit input from Analysts on the roadshow presentation

    >    Marketing and Roadshow

           •    During marketing process, no event can be attended by Bankers and Analysts together

           •    Analysts may NOT introduce management to buyside accounts during roadshow

           •    Analysts may NOT provide input into the roadshow schedule or identify investors to
                target

           •    Analysts may NOT attend roadshow meetings

           •    Analyst estimates and other perspectives/opinions may NOT be discussed or distributed
                in any manner, at any time by Bankers or Management during the roadshow




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                         21
The Global Settlement and IPO Underwriting

 Marketing
    >    Analysts’ communications with Investors

           •    Analysts may NOT make outgoing phone calls or other communications to Investors to
                solicit interest in the offering

           •    Analysts may respond to incoming calls from Investors and discuss:

                   – Business fundamentals of the company

                   – Information contained in the prospectus

                   – Analyst’s previously published research reports and financial model

           •    Analysts may NOT discuss or provide an opinion with respect to:

                   – Structuring or pricing of the transaction

                   – Any information not contained in the prospectus

    >    Bankers and ECM personnel may NOT direct and Analyst to initiate or take calls from
         investors

    >    Analysts may NOT communicate investor feedback to Bankers or ECM personnel

    >    Analysts may not participate in the pricing call




 TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                      22
                      CIBC World Markets

                       2002 & 2003 YTD Lead and Co-Managed Equity New Issues


                               Issuer Market Cap Less than $1 Billion                                                    All Deals
 CIBC’s strength is
                                                                                 Total                                                        Total
with middle-market                                                    # of       Amt.                                                # of     Amt.
companies; we have       Pos.                Manager                  Deals     ($mm)         Pos.               Manager             Deals   ($mm)
                           1     CIBC World Markets                     73       8,654         1     Credit Suisse First Boston      184     72,946
  a long record of
                           2     Merrill Lynch & Co                     72      14,615         2     Merrill Lynch & Co              176     68,138
    successfully           3     Credit Suisse First Boston             68      13,875         3     Citigroup Global Markets Inc    150     72,815
     executing             4     UBS AG                                 66       8,770         4     UBS AG                          146     52,914

  transactions for         5     Lehman Brothers                        55       7,558         5     JP Morgan Securities Inc        142     64,136
                           6     US Bancorp Piper Jaffray Inc           53       4,767         6     Morgan Stanley                  141     56,777
 these companies
                           7     Bear, Stearns & Co                     52       7,106         7     Goldman, Sachs & Co             131     66,857
                           8     JP Morgan Securities Inc               46      12,083         8     Lehman Brothers                 123     48,358
                           9     Morgan Stanley                         45       7,984         9     Banc of America Securities      104     48,636
                          10     RBC Capital Markets                    45       4,180         10    Deutsche Bank AG                 97     41,605
                          11     Deutsche Bank AG                       43       8,211         11    CIBC World Markets               94     19,565
                          12     Societe Generale                       42       5,796         12    Bear, Stearns & Co               92     32,233
                          13     Citigroup Global Markets Inc           39       9,832         13    US Bancorp Piper Jaffray Inc     61      7,281
                          14     Raymond James                          39       2,823         14    Wachovia Capital Markets, LLC    59     24,161
                          15     Goldman, Sachs & Co                    35      12,072         15    RBC Capital Markets              59      9,457
                          16     Banc of America Securities             35       8,037         16    Societe Generale (Paris)         55     16,289
                          17     Thomas Weisel Partners LLC             30       3,003         17    Raymond James                    54      6,386
                          18     Legg Mason Wood Walker Inc             28       2,599         18    AG Edwards & Sons Inc            41      7,695
                          19     Needham & Co Inc                       28       1,899         19    Legg Mason Wood Walker Inc       41      7,593
                          20     BMO Financial Services                 25       3,073         20    Thomas Weisel Partners LLC       39      7,155



                       Source: Dealogic EquiDesk.
                       Assumptions: Ranked by number of issues for lead and co-managed deals.
                       Includes IPOs and Follow-ons, excludes closed-end funds and REITs.
                       Based on calendar year pricing dates and on total issue amount, allocates 100% to each manager.

                       TECHNOLOGY IPO PERSPECTIVES / October 20, 2003                                                                                 23

								
To top