IPO Anxiety - East Coast Version (part 1: MA)

Bill Gurley’s excellent piece on Silicon Valley IPO Anxiety inspired me to take a companion look at the East Coast, particularly Massachusetts and New York, and evaluate the health of the local IPO economy and prospective pipeline.  Today, I'll cover Massachusetts; tomorrow, New York.

I first came across Bill when he was a Wall Street analyst and covered my company Open Market (IPO 1996).  I always admired his perspicacity, even if he didn’t like our stock all the time!  For purposes of this blog post, I am only focused on companies involving technology, whether software, Internet, health care or energy – which I’ll define as members of the Innovation Economy.  Note also that, for obvious reasons, I leave out any Flybridge Capital portfolio companies in my analysis.

Massachusetts

First, let’s look at my home state of Massachusetts.  By my count, there are 33 Innovation Economy companies with market capitalizations of greater than $1 billion (see chart below).  Some of these are important companies, leaders in their field, and full of great future prospects (EMC, Thermo, Genzyme, Akamai).  Others have seen slower growth, are a bit more tired, and may get gobbled up in the years ahead (Parametric, Novell, Progress).  A number of them are recent IPOs who are growing nicely and may become multi-billion dollar revenue companies in the years ahead (Acme Packet, VisaPrint, Athenahealth).  

Other recent IPOs, like Constant Contact ($720M), A123 ($960M), Insulet ($520M) and EnerNOC ($600M), are sub $1 billion in market cap, so not listed here, but are representative of a number of small market cap players in the community who have > $1 billion potential.  The headquarters of each company is within 30-45 minutes of each other, so the degree of talent concentration and social interaction is very high.  Further, acquisitions in the last 12 months such as Unica (IBM $480M), ATG (Oracle $1B), Netezza (IBM $1.7B), Phase Forward (IBM $685M) and Starent (Cisco $2.9B) show that there’s a vibrant M&A market for small cap technology companies in 2010 and will likely be a catalyst for talent to be recycled.

2010 Rank	Company	Market Value (mn)	2009 Revenue (mn)
1	EMC	$44,960	$14,026
2	American Tower Corp.	$20,730	$1,724
3	Thermo Fisher Scientific	$20,350	$10,110
4	Genzyme Corp.	$18,470	$4,495
5	Biogen Idec	$15,470	$4,377
6	Analog Devices	$10,490	$2,015
7	Boston Scientific Corp.	$10,290	$8,188
8	Akamai Technologies	$9,030	$860
9	Waters Corp.	$7,190	$1,499
10	Vertex Pharmaceuticals	$6,960	$102
11	Nuance Communications	$4,940	$950
12	Iron Mountain	$4,470	$3,014
13	Skyworks Solutions	$4,310	$1,072
14	Hologic	$4,190	$1,680
15	Monster Worldwide	$3,010	$905
16	Acme Packet	$2,800	$141
17	Bruker Corp	$2,540	$1,110
18	Parametric Technologies Corp.	$2,480	$1,010
19	Varian Semiconductor	$2,400	$832
20	Novell	$1,960	$862
21	Charles River Laboratories Int’l	$1,920	$1,203
22	VistaPrint Ltd.	$1,770	$670
23	Progress Software Corp.	$1,680	$494
24	Sapient Corp.	$1,660	$667
25	American Superconductor	$1,530	$316
26	Haemonetics Corp.	$1,450	$629
27	athenahealth	$1,400	$189
28	Cubist Pharmaceuticals	$1,370	$560
29	Parexel International Corp.	$1,170	$1,336
30	Pegasystems	$1,110	$264
31	GT Solar	$1,090	$733
32	Alkermes	$1,030	$178
33	LogMeIn	$1,050	$79

Yet, when you evaluate the pipeline of IPO candidates, the results in MA are less inspiring.  One interesting ranking comes from Business Insider’s list of the 100 most valuable private digital companies.  Although this is only one and skewed towards one industry sector, it contains only one company from MA in its ranks:  Brightcove.  In an informal survey of a number of Boston VCs and entrepreneurs, the same 10-15 names come up as IPO candidates in the next 2-3 years (the criteria I asked folks in my informal survey was to name companies growing fast, revenue runrate > $30m, profitable or converging on profitable and probably worth > $100M today).

They include (note – all estimates are my own judgment and highly disputable; for obvious reasons, I did not include any Flybridge Capital portfolio companies, so we are not investors in any of these):

• Brightcove ($50-60m)
• Carbonite ($60-70m)
• Communispace ($50-60m)
• CSN Stores ($300-400m)
• Endeca ($80-100m)
• Glasshouse ($90m) – registered for IPO  
• Globoforce ($80-100m)
• Hubspot ($25-30m)
• ITA ($150-200m) – Google acquiring for $700m
• Jumptap ($40-50m)
• Kayak ($150m) – registered for IPO
• Kiva Systems ($80-100m)
• Kronos ($700-800m)
• Litle & Co (>$100m)
• Name Media ($50-60m)
• Vertica ($25-30m)
• Zipcar ($130m) – registered for IPO

There are numerous divisions of public companies that historically resulted from acquisitions – like TripAdvisor/Expedia ($400-500m revenue), Shoebuy/IAC ($200-300m revenue) and Rue La La/GSI Commerce ($150-200m revenue) – but those are not included here as they’re not relevant to this analysis unless they get spun back out.

The conclusion?  There is a robust public company ecosystem in MA, which should serve as an inspiration and catalyst for other local private companies.  Strong public company talent is easily recycled at the most senior levels (see, for example, Akamai’s hiring of former Digitas CEO David Kenny as COO) and when you gather at networking events and see other CEOs who have taken their companies public, it is a wonderful inspiration.  

But, sadly, the private company ecosystem in MA is less inspiring, with only roughly a dozen private companies that could possibly be public companies in the next two to three years and only a half dozen with revenues of greater than $100m.

Tomorrow, I'll analyze the New York market, which yields a quite different picture by comparison.  

Comments

[Bob]

Very interesting article as usual.

One question though: you believe the "smaller growth" companies can be gobbled up. Novell aside (which is on the path of being acquired), what would be the point of acquiring a "slower growth", "bit more tired" company if the market cap is still pretty high?

I guess Novell's patents are worth the "tired" part of the company. But isn't that more the exception than the rule?

[bussgang]

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I won’t speculate as to whether these companies
are fully valued or bargains, but if someone perceives them to be a bargain
they’ll get gobbled up or taken private, like Novell.
 

[Bob]

Thanks for answer