2008 IPO Report - Initial Public Offerings

US IPO Market Review and Outlookresponsibilities for public companiesand their directors and officers.These changes have helped improveaccountability to stockholders, boardoversight of management, board memberqualifications and investor confidence—but have also increased the cost of beingpublic, both in terms of potential liabilityand the expense of compliance.In the near term, the new corporategovernance environment may deter someIPO candidates, steer them to liquiditythrough acquisitions or incent themto pursue IPOs in markets outside ofthe United States. Offshore IPOs by UScompanies have grown as a percentageof all US company IPOs worldwide,increasing from less than 5% in eachyear prior to 2004, to 10.9% in 2006and 13.4% in 2007. In the longer term,however, we believe that corporategovernance changes will be assimilatedinto IPO planning and not pose a majorimpediment for most companies wishingto pursue IPOs in the United States.Venture Capital PipelineVenture capitalists depend on IPOs—along with company sales—to provideliquidity to investors. Although a largenumber of VC-backed companies arein IPO registration, many of theseofferings are on hold. Longer term,the pool of IPO candidates will be affectedby current trends in venture capitalinvesting, including the timeline frominitial funding to IPO. According to DowJones VentureOne, the median amountinvested from initial equity financingto IPO increased from $58 million in 2006to $66 million in 2007, and the timefrom initial equity financing to IPOincreased from 6.2 years to 7.1 years.Private Equity ImpactPrivate equity investors also seekto divest portfolio companies or achieveliquidity through IPOs. PE-backedcompanies are usually larger and moreseasoned than VC-backed companiesor other start-ups pursuing IPOs,and thus can be strong candidates ina demanding IPO market. The turmoilin the credit markets and sharp reductionin buyout activity that began in late2007 will probably dampen the flowof PE-backed IPO candidates in 2008.