Monday, March 10, 2008

After robust 2007, New England tech firms steer clear of IPOs

By Christopher Calnan

The first two months of 2008 have yielded zero New England technology IPOs, down from the first two months of last year, when three local tech companies had already completed IPOs.

Four local tech companies are in registration to go public, but the volatile public markets and slumping prices of tech stocks -- combined with a national economy teetering on recession -- have given CFOs reason to put the brakes on IPO plans so far this year.

In fact, three companies have either withdrawn or postponed IPOs since Jan. 1 -- all of them in the capital-intensive biotech sector. And nationally, the number of all withdrawn IPOs (including tech companies) during the first two months of 2008, at 20 withdrawals, is nearly triple the number at this time last year.

"It's a comment on the market. It's not a comment on these companies," said Michael Fitzgerald, general partner at Commonwealth Capital, a Waltham venture capital firm.

Indeed, technology companies have not been immune to the difficult public markets. An index of 181 publicly traded New England tech companies tracked by Mass High Tech and Bentley College has dropped nearly 17 percent from Oct. 31, 2007 to the end of February.

Last year, 20 local VC-backed companies completed IPOs, but nearly two-thirds of local tech companies that went public last year are now trading below their initial prices, according to Ben Howe, CEO of America's Growth Capital, a Boston investment bank.

For example, Waltham-based Salary.com Inc. shares priced at $10.50 in its February 2007 IPO, but those shares are now trading for just above $7 apiece. Nationally, 67 percent of the tech IPOs completed this year are trading shares below initial prices, Howe said.

Local tech companies registered to file IPOs that have yet to complete them represent the biotech, hardware and software sectors: Andover-based TransMedics Inc.; Woburn-based LogMeIn Inc.; Portsmouth, N.H.-based NitroSecurity Inc.; and Framingham-based GlassHouse Technologies Inc., according to data from Dow Jones VentureSource.

Biotech companies have been the most likely IPO withdrawal candidates: Cambridge-based Elixir Pharmaceuticals Inc. postponed its IPO in January and Archemix Corp., also in Cambridge, withdrew its IPO in February; BG Medicine Inc. of Waltham withdrew its IPO registration in January.

Biotech companies are leading the pack in withdrawing or postponing IPOs because that sector is so dependent on large amounts of capital -- sparking the larger number of registrations when market conditions were friendlier months ago, said Jeffrey Quillen, a venture capital and life sciences partner at Boston law firm Foley Hoag LLP.

"More biotechs registered in the first place because biotechs are the first ones to run to the IPO window," he said.

If the lack of IPOs continues, the overall tech economy could suffer if investors can't find other avenues to raise the capital they need to operate and grow, said Josh Lerner, an investment banking and entrepreneurial management professor at Harvard Business School.

"It clearly slows things down in terms of the robustness of the sector," Lerner said. "That's why technology is so prone to boom and bust cycles."

IPO delays can be a positive, if they lead to better results when a company finally does go public -- but delays can also cause morale problems if employees consider going public a major milestone, said Kodiak Venture Partners managing general partner Lou Volpe, who held management positions with three New England tech companies that completed IPOs from 1989 and 2000.

Such conditions also require portfolio companies to manage the expectations of investors anxious to see a return on their investments, he said.

IPO delays also require registered companies to disclose their quarterly financials, in effect giving competitors a peek at the company's bankbook, industry observers said. Likening a delayed IPO to postponing a wedding, Howe said delays can raise skepticism.

"You get a lot of questions, and they're not positive questions," Howe said. "They're going to wonder if it's (a problem with) the company."