Interviews with Digital Media Thought Leaders

When Can Digital Media Companies Go Public?

Podcast Audio | Posted by Phil Leigh on July 16, 2008

When Can Digital Media Companies Go Public? [18:36m]: Play Now | Play in Popup | Download

Peter Falvey, Co-Founder of Revolution Partners If you would like to learn what a prominent investment banker thinks about the IPO, private placement, and M&A market for Digital Media companies, this interview is for you.

Our guest today is Peter Falvey who is a Co-Founder of Revolution Partners. His company is an investment bank specializing in technology companies. Their focus is on M&A and private placements. Prior to forming Revolution Partners, Peter was with Robertson, Stephens and his other Co-Founder was with Credit Suisse. During the June quarter of 2008 there were no Initial Public Offerings (IPOs) of common stocks among those privately-owned companies backed by venture capital firms. It has been 30 years since at least one VC-backed company failed to complete an IPO during a full calendar quarter. Significantly, the venture capital community was much smaller in those day and few of the bankers from Wall Street even bothered to learn about them. Additionally, even fewer of the VCs active today had even started their careers at that time.

In addition to weakness in the underlying capital markets, Peter feels that shrinkage in the pool of quality stock analysts is also partly responsible for the dearth of IPOs for technology companies. In his view, even sophisticated institutional investors are reluctant to purchase shares of esoteric companies without reliable coverage by knowledgeable stock analysts. He observes that the commission rates on stock transactions have trended too low to enable full service brokerage firms to provide an adequate staff of analysts. In point of fact, Revolution Partners itself does not offer any public securities trading or research and instead prefers to focus on mergers and private placements.

Phil’s Take: The major problem IPOs presently is that the overall capital markets are weak. Probably the number one culprit is the bursting of the housing market which is forcing lenders to de-leverage their financial statements. This makes it harder for borrowers to get money to buy anything from houses to entire companies. Simultaneously, consumers are discovering that they cannot borrow funds on their existing homes to pay for general merchandise such as automobiles to gasoline. In short, the IPO market will improve when the underlying capital markets improve and that will happen when an end to the economic decline is in sight.