While we don’t want to make too much out of the correlation between public and private markets, recent initial public offering (IPO) activity provides an interesting reference point for private company merger and acquisition valuations, as well as a barometer of the relative attractiveness as an alternative vehicle for expansion capital. We recently took a look at how IT security companies that went public in 2012 have fared year to date, compared to all other stock market launches during the same time period. Of eleven end markets considered, IT security has underperformed— ranking 8th in terms of year to date performance.
Exhibit 1 below shows IT security IPOs have declined 1.9%, compared to an 8.7% increase in the S&P 500 in 2012. Our analysis is based on the following:
- As of August 31, we considered 86 common stocks. There were 196 IPOs filed— we excluded exchange traded funds, preferred stock offerings, oil/financial trusts, and ADRs.
- Five IT security companies filed IPOs— AVG Technologies (-21.15%), InfoBlox (+2.16%), Palo Alto Networks (+19.39%), ProofPoint (-6.61%) and Splunk (-3.04%).
|Medical / BioTech: ASGN, CEMP, CCXI, DRTX, GMED, GWAY, HPTX, MACK, SUPN, VSTM|
|Application Software: ACTV, BCOV, ELOQ, EOPN, ET, EXA, NOW|
|Consumer Goods: FIVE, TLYS, TUMI|
|Energy: EQM, MTDR, MPO, NTI, REGI, TSO|
|Financial: EVER, HMST, KFN, NSM, OAK, PNX, RM, SF, CG|
|Food: BLMN, BNNY, CHUY, DFRG, IRG, NGVC, RNDY|
|Industrial: ADNC, ALSN, EAC, EDG, EVAC, FET, GLOG, GSE, HCLP, MRC, MTSI, PRLB, PSMI, RXN, SVL, SLCA|
|IT Security: AVG, BLOX, PANW, PFPT, SPLK|
|Online Services: AQ, BV, DWRE, GWRE, PRSS, KYAK, MM, SYNC, VNTV, WAGE, YELP|
Other Tech: CLIR, ENPH, ENVI, EPAM, PFMT
REIT: ARCT, AMRE, ACRE, EXL, RPAI, SIR, WMC
Here are some of our thoughts when we look at this data:
- Drivers that could enhance near-term performance: Q4 earnings release (especially what companies think about 2013 outlook) and election results (in particular, the implication on cyber legislation).
- Year-to-date performance doesn’t appear strong enough to forego private capital or M&A as plausible strategic alternatives.
- IT security IPOs to date mainly face the commercial market. Support in the public market may provide an interesting catalyst for government-focused cyber companies to diversify.
- These companies may provide visible competitive intelligence of commercial security offering adoption rates by defense, intelligence and critical infrastructure markets.