US investors are living in nail-biting times, as they see the markets factor in a major upheaval in the telecom and personal computers segments. The old guard is on the retreat — at least from the stock markets — while the new ones are reposing faith in it, just eight years into their existence.
So, we are finally seeing a huge buy-out of shares by Dell’s promoters, on the one hand, and the prospect of another nerve-tingling IPO from Twitter.
The larger takeaway is the healthy equity culture in the US, despite the broader macroeconomic context, and the lessons it holds for India. Dell, battered by falling revenues, wants to go private to sort itself out, avoiding the arc lights of the analysts. Michael Dell clinched shareholder approval for his $25-billion offer to buy and take Dell Inc private, ending months of conflict with the company's largest investors.
Within hours of this development, the inventor of 140-word messaging and popularly known as the SMS of the Internet — Twitter — announced through a 135-word tweet that it has confidentially submitted an S-1 to the Securities and Exchange Commission for an IPO.
Dell, a household name even today, is taking a hit in an era where people spend more time on their smart phones than computers. Twitter is basking in the sunlight for having invented a new name for more than 554 million people — Tweeple.
Twitter’s show
Till date, Twitter has been riding on its popularity and all estimates of its turnover and possible valuation are experiments in logic. It is entering into a public listing through soft provisions in the Jump Our Business Start-ups (JOBS) Act.
This allows firms with annual revenue of less than $1 billion to temporarily bypass some regulatory hurdles as they file initial public offerings, and even after. The idea is to make it easier for these emerging growth companies to go public, grow and hire more workers.
The companies have an a la carte menu of options, and Twitter chose a popular one by confidentially submitting the IPO paperwork to the Securities and Exchange Commission.
The financial details in that paperwork — such as whether the firm is profitable; what it pays its employees or the kind of risks it faces — won’t be made public until 21 days before Twitter’s road show, when it starts to market itself to potential investors. Twitter also has the liberty of timing its IPO. It also gets breathing time from Section 404 of the Sarbanes Oxley Act, which involves a costly and cumbersome external review of its internal controls.
Comparisons with the IPO’s of LinkedIn and Facebook are bound to be done.
While LinkedIn made a stunning success of its IPO with the listing price more than double its offer price of $45, Facebook did not get many likes for the way its IPO was handled and priced. It has just about managed to get its listing price above its offer price of $38.
The ever-existent negative global headwinds and the little bit of positive news emerging from the US could ensure that the Twitter IPO, whenever it happens, may neither be a smashing success like LinkedIn or a debacle like Facebook.
Other IPOs
LinkedIn, Facebook and Twitter have all gone public within eight years of their business arangetram . This proves the belief of these companies in the long-term inherent strength of the US markets that they can capitalise on to list and, as Dell shows, to delist as well.
Some lessons for India here? Indian companies tend to take longer time to get onto the IPO bandwagon. As the NSEL crisis and the numerous ones that preceded it show, India needs to do much more to ensure that the stock markets become the first resort for companies to raise funds. We lack the institutional maturity. And what of Dell? It reported a 72 per cent slide in quarterly earnings last month.
Whether Dell can build its storage, networking and software portfolios to vie with already entrenched players like HP and others would be the key to its future.
(The author is Director, Finance, Ellucian.)