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Summary:

[qi:115] OpenTable’s stunning performance in its first day of trading is a sign of unexpected warmth in the market for technology IPOs. But while the market success of the restaurant reservations software developer may not be a true bellwether that leads to a flurry of additional […]

[qi:115] OpenTable’s stunning performance in its first day of trading is a sign of unexpected warmth in the market for technology IPOs. But while the market success of the restaurant reservations software developer may not be a true bellwether that leads to a flurry of additional IPOs, the new listing’s surprising gains could signal a shift in the balance between venture capitalists’ two traditional exit opportunities: merger-and-acquisition deals and public offerings. With tech IPOs absent during the nine months between Rackspace’s August 2008 offering and SolarWinds’ offering earlier this week, that “balance” has been more or less nonexistent, but a perceived revival of IPOs could prompt more activity on the M&A side as well.

Buyers with cash to spend on tech startups have enjoyed a period of depressed valuations since last fall, but M&A deals have been few and far between as stock prices have fluctuated and uncertainty has prevailed. More recently, though, increased stability in the public markets has led to reports of rebounding M&A activity. A closed IPO window typically coincides with a buyer’s market for tech companies on the M&A side, while superior IPO opportunities tend to drive prices upward as stakeholders believe they have alternatives beyond a sale. Could OpenTable’s striking success — at least thus far — portend a run on venture-backed startups before their prices rise again?

According to one boutique investment banker I spoke with, there’s currently a perception among some buyers that it’s time to move quickly while target companies are still cheap. “People with cash who’ve been hiding out on the sidelines are coming back aggressively,” he said. A McKinsey study released last month showed that high-tech companies that became stronger during the post-dot-com bust of 2000-2002 frequently did so by making acquisitions, and did so most effectively when they waited for more attractive valuations later in the downturn before buying. Though some still believe valuations will continue to drop, companies such as Yahooare showing interest in acquisitions, and Internet stocks are beginning to rally again. And although no tech companies are on deck for upcoming IPOs in OpenTable’s wake, the perception that a candidate could go public sooner that expected could raise its price on the M&A market.

To be sure, OpenTable wasn’t a typical IPO candidate. Founded in 1998, the dot-com survivor is way past the 4-to-7-year-old window in which most VCs seek to gain liquidity, and has even outlasted the 10-year lifespan of most VC funds. It’s also looking to raise proceeds to compensate insiders, rather than fill its coffers for growth as many tech startups do. But the mere existence of any IPO window at all, let alone one in which a company that initially intended to price its shares as low as $12 saw them change hands for as much as $35.50 on the first day of trading, surely represents a psychological change from a few months ago, and may signal a fresh chance for VCs to gain liquidity through a sale as well.

Shares of OpenTable, which were initially set at a range of $12-$14 and were subsequently repriced to the $16-$18 range, finally priced at $20. They ended their first day of trading at $31.89, up just shy of 60 percent.

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  1. courtney benson Thursday, May 21, 2009

    Insiders better take the money and run, me thinks this stock will not perform well. Expect to see it selling under $12.
    As far as tech’s going the IPO route – yes, if you can take off like a rocket on opening day.

  2. Icma2002.Com » Blog Archive » OpenTable Shares Slip in Second Day Friday, May 22, 2009

    [...] GigaOM’s Paul Bonanos wondered if a company’s IPO could signal some-more understanding activity in a tech sector, citing “a notice between a little buyers which it’s time to pierce fast [...]

  3. Friday links: the reflation trade | HeatUp.com – Internet News Saturday, May 23, 2009

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  4. Steve Westly Predicts the Next Cleantech IPOs: Tesla, Silver Spring, Solyndra Monday, May 25, 2009

    [...] two venture-backed startups, software maker SolarWinds and online restaurant reservation system OpenTable, broke the mold and went public. Neither was a cleantech firm, but the news was a positive sign for [...]

  5. don’t believe everything you read…especially from those whom are uninformed.

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    [...] May 27, 2009 | 3:00 AM PT | 0 comments The jury’s still out as to whether technology M&A activity will pick up in the coming weeks, but here’s one deal that’s just been completed: Interactive voice [...]

  7. Steve Westly Predicts the Next Cleantech IPOs: Tesla, Silver Spring, Solyndra | Save Energy, Save Money Wednesday, May 27, 2009

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  8. Next Hot Tech IPO: LogMeIn Sunday, June 28, 2009

    [...] consequences. OpenTable, another start-up, went public in May 2009. A LogMeIn offering could result in more technology mergers and acquisitions. The possibility of more IPOs may drive up prices for likely buyout candidates, giving buyers a [...]

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