This year has been an unusual one for corporate finance–record M&A dealmaking, a drought in IPOs–but as 2015 wears on, things are starting to get downright weird.
The trend is especially noticeable in the tech industry, where startups have been shunning the IPO market for a few years, hoping instead to tap into mega-rounds of private financing. Only now are they moving into the IPO queue, with #Square, #MatchGroup and #Atlassian aiming for IPOs by year’s end.
The trouble is, they are going public just as public investors are growing finickier. And that’s costing them potential capital. Square now plans to go public with a valuation of about $4 billion, down from the $6 billion valuation it enjoyed during its last private round a year ago.
Square is seen as a test case for other tech startups that will likely feel pressure to go public now that the private venture financing is starting to dry up. It’s already setting one not-so-great trend: marking down IPO prices below the exuberant private valuations. Tech companies that have fought for years to stay private may end up wishing they had gone public when the going was good.
Elsewhere, there’s a sense that companies are scrambling to do something–anything–to position themselves when the inevitable downturn hits. After years of arguing why it would never split up, HP did just that. #HP now says severing itself in two is the best way forward. Even as two of its rivals–#Dell and #EMC–are moving in the exact opposite direction.
The whole tech sector, flush for years with confidence and talk of disruption, suddenly has an air of desperation about it. The Fed will raise interest rates soon, an incremental move that could have an outsize impact on investment strategies. Some tech startups are securing financing where they can, while others are trying to burn less cash. Tech giants are reorganizing, hoping to get a foothold in a promising market like cloud computing.
Nothing illustrates just how desperate tech companies are feeling these days than the ambitious merger of Dell and EMC. Valued at $67 billion when it was announced, the Dell-EMC will rank not only as the largest tech M&A in history but also the largest leveraged buyout ever staged to take a company private. To pull it off, the companies need to use creative financing – a polite way of describing a hairily complex deal.
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