Tuesday, 19 January 2016

Best IPOs to expect in 2016

The IPO market often provides lots of juicy investment opportunities, especially in hot areas like software and biotechnology.
But for 2015, things weren’t so interesting. For the most part, there were no high-profile deals. Perhaps the reason is that the venture capital (VC) market has been strong, which has resulted in little incentive for private companies to pull off IPOs.
But this could easily change next year. First of all, there are signs that VCs are getting more circumspect. To this end, several mutual funds like Fidelity and BlackRock (BLK) have recently slashed the valuations on companies like Snapchat and Zenefits.
Furthermore, there will inevitably be more pressure for VCs to get cash returns on their mega investments.
OK then, what deals may we see in 2016? Well, here are 10 on the following pages that have a good chance of getting done.

1. Airbnb
The Airbnb app on a smartphone© Justin Sullivan/Getty Images The Airbnb app on a smartphoneAirbnb is one of the pioneers of the so-called “sharing economy.” Essentially, the company operates an online and mobile marketplace that allows people to rent out rooms of their homes or apartments.
To get a sense of the growth, Airbnb expects to nearly double the bookings on New Year’s Eve to over a million. The company offers its services in over 190 countries, even Cuba.
During the summer, Airbnb raised a whopping $1.5 billion at a valuation of $25.5 billion, making it the third most valuable startup in the world. Investors included General Atlantic, Hillhouse Capital Group and Tiger Global Management.
So why go public? There are several reasons. First, there will likely be interest from Wall Street since Airbnb appears to have strong financials, with revenues more than doubling to $340 million in the third quarter.
Next, the company has been moving aggressively into overseas markets. Thus, by being public, Airbnb can use its stock as currency to pull off deals. This will definitely be helpful because the company is starting to see real competition emerge, such as from big players like Expedia (EXPE)
2. SecureWorks
The security operations center at the Dell SecureWorks office in Myrtle Beach, South Carolina. © Stephen Morton/Bloomberg/Getty ImageThe security operations center at the Dell SecureWorks office in Myrtle Beach, South Carolina. Back in the summer of 2011, Dell purchased SecureWorks for roughly $612 million. The deal was about bolstering the computer giant’s moves into the fast-growing cybersecurity space.
So why now spin-off the asset? All in all, Dell actually needs to gin up more cash for its $67 billion acquisition of EMC (EMC).
In terms of the SecureWorks core business, the focus is on providing a wide assortment of solutions, such as to prevent security breaches, identify malicious activity in real-time and even predict potential threats. The company, which has been around for 16 years, has over 4,100 clients.
Growth has been fairly stable, with a 27% increase in revenues in fiscal 2015 to $205.8 million. More importantly, given that cybersecurity is a “must have” for many organizations across the globe, it’s a good bet that there won't be a slowdown anytime soon.
3. Dropbox
Dropbox app© Press Association Dropbox appAccording to the CEO of CB Insights, Anand Sanwal, there will likely be some companies that will have little choice but go public in 2016. He calls these “dragged-to-IPO” deals. The reason? For the most part, these kinds of companies have been valued too high in the private markets and have not met the lofty expectations.
One such company on Sanwal’s list is Dropbox. While the company revolutionized the cloud/mobile storage business, there are now signs that the growth is trailing off. A big factor has been the intense competition from players like Amazon.com (AMZN), Microsoft (MSFT) and Google (GOOG, GOOGL).
But it also looks like Dropbox’s efforts in the business market has also been challenging.
Although, all this does not mean that an IPO will be a bad one. If anything, Dropbox may provide a compelling valuation to attract the interest of skeptical investors.
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