Here’s an unsettling thought: Imagine ExactTarget Inc.’s bid for an initial public offering leading to a very different ending—the sale of the successful e-mail marketer to another technology company.
There’s no chatter in the tech community that a deal is afoot, and it’s certainly possible ExactTarget has ruled out such a scenario. (Company officials wouldn’t comment, citing restrictions while the registration statement for the $100 million IPO is pending with the Securities and Exchange Commission).
But firms pursuing IPOs simultaneously investigate the possibility of a sale as a matter of course, in part because doing so helps investment bankers assess how they should price shares if they pull the trigger on an offering.
“At the beginning, you are running a parallel process,” said David Millard, a Barnes & Thornburg partner who has worked with many of Indiana’s fastest-growing companies. “You typically want to go public—that is your goal. But you are doing a market check to see whether the market will give you more in a sale vs. what you get in an IPO.”
It varies how far that analysis goes. Sometimes, investment bankers actually contact potential buyers to draw out interest—a process that sometimes yields the proverbial offer you can’t refuse.
We’ve seen variations of that time and again in central Indiana. Hat World Inc. was seriously considering staging an IPO in 2004, but discovered suitors were willing to pay so much it made sense to seal a sale. Tennessee-based Genesco Inc. prevailed, scooping up the chain for $165 million.
An IPO “would have been a realistic option had we not found the level of interest in the marketplace we did,” Steve Kirby, a venture capitalist who served on the board, said at the time.
In November 2005, Aearo Technologies Inc., an Indianapolis-based maker of personal safety gear, filed to go public. But two months later, it reversed course and sold to the London-based private equity firm Permira for $765 million.
Then there’s Aprimo Inc., the Indianapolis-based maker of marketing software, which sold to Dayton, Ohio-based Teradata Corp. for $525 million one year ago.
It was on a similar trajectory as ExactTarget. Both firms had filed for IPOs before the financial crisis, but pulled the deals because of unfavorable market conditions. Aprimo’s board had begun to look at an IPO again before opting instead to accept Teradata’s eye-popping offer.
An outright sale often is the more attractive option for companies because it spares insiders from myriad uncertainties, Millard said. It’s not clear until just before IPOs launch what the shares will fetch, for instance, and then management and the board must ride the ups and downs of the market and adapt to investors’ obsession with quarterly results.
“If you are projecting an IPO price is going to be lower or about the same, you probably take the M&A way out, because it is the more certain deal,” he said.
Millard, though, speculates that ExactTarget’s IPO has been in the pipeline long enough that the company already has wrapped up the sale analysis and is charging ahead with the public offering. It filed with the Securities and Exchange Commission to revive its IPO on Nov. 23 and updated the paperwork Dec. 30.
And, of course, few decisions in business are made solely on the numbers. Many executives would rather lead their own public companies than be relegated to operating a subsidiary of a much larger business. Scott Dorsey, ExactTarget’s CEO, doesn’t seem like the type who’d be satisfied in a secondary role.
But you never know how these things are going to play out. ExactTarget, like many IPO candidates, is backed by venture capitalists whose ultimate aim is to pocket the largest return possible. Let’s hope the company’s internal analysis concludes the IPO path leads to the greatest riches.
Battery Ventures to get another jolt?
Silicon Valley’s Battery Ventures, which hit pay dirt on the Angie’s List Inc. IPO in November, is poised to score again with ExactTarget, another Indianapolis company just a mile to the west.
The venture firm has poured tens of millions of dollars into ExactTarget and holds a 17.5-percent stake, SEC filings show.
The Angie’s List IPO roughly quadrupled Battery’s $35 million investment in that firm. It sold shares in the offering while retaining a 15-percent stake.
Battery executives have lavished praise on both firms. Partner Roger Lee told Bloomberg in November that it backed Angie’s List and another firm in its portfolio, Chicago-based Groupon, because they help companies that previously struggled to reach customers online.
“We always thought that would be a really big opportunity,” he said.
In 2009, when Battery led a $70 million funding round for ExactTarget, partner Michael Brown said: “The company has a superior technology platform, a stable of extremely satisfied blue chip customers, and a team with the vision and ability to deliver on a huge opportunity.”•