At the recent Wilson Sonsini Goodrich & Rosati Medical Device Conference in San Jose, Piper Jaffray investment bankers, Richard Gustafson and Neil Riley, presented data suggesting that the IPO market was possibly reopening.
As the stock markets recovered in 2003, the number of IPOs increased (see table below). The 2009 market recovery is showing a similar trend. Average revenue for IPO companies in 2003 was $165M. Similarly, average revenue for IPO companies in 2009 $149M. So far, the IPOs in 2009 have performed well, up about 35%. Due to increased volatility, a lot of money is currently on the sidelines. As volatility returns to normal, the bankers believe that some of that capital will go into IPOs.
The bankers admitted that unemployment is now much higher than it was in 2003, 9.4% vs. 6.5%, respectively. Unemployment is a lagging indicator though, so it should have less an impact on the markets’ recovery. They did expect the recovery to be gradual and protracted.
Before everyone gets too excited, keep in mind that the companies that have done an IPO this year were profitable and growing at 20%. While some medical device companies can make that claim, most biopharmaceutical companies can’t. For what it’s worth, I remain a bit skeptical about a near-term recovery for a number of reasons – too many to discuss now. But, I am hopeful that the IPO market will eventually recover.