Bernard Lunn writes a useful analysis of the recent LinkedIn deal in ReadWriteWeb. While I found it thorough and detailed, if I were to critique it, I’d say that it’s myopic and thus over-complicated.
Here’s what I mean. First off, Bain Capital is a top, top tier private equity firm with over $50B in capital. This sterling reputation implies a huge war chest–money which they need to put to work. LinkedIn similarly, is a top tier tech firm, which while a start-up, has certainly reached a level of maturity that comes with a proven business model, revenue stream, and clear growth plan.
The question — why the linking of the two versus an IPO for LInkedIn–is pretty straight-forward, when you consider the broader context of markets today.
For starters, the markets stink with oil at $140 a barrell, repeatedly sour revelations from banks related to the credit crunch, and the dow hovering around 12K. The coming election is having two additional impacts which will likely last through the end of the year: (1) the Fed cannot shift rates, as there is too much political capital tied up in that; and (2) the markets expect Obama to win, he’s viewed as more negative for business, and the markets are figuring out how much worse right now.
In short, if public markets stink and will for a while, and you want/need the money to grow, then go elsewhere. That’s what it looks like LinkedIn did.
Add to it the overhead of Sarbanes Oxley, and it’s no wonder LinkedIn went the Bain Capital route. There are a ton of seasoned execs in big companies and recently public start-ups with whom I’ve spoken who can’t believe the headaches involved with Sarbanes Oxley. It’s a mess. For those of you in tech land dreaming of an IPO, beware (or be sure you have a rock solid CFO)–it’s painful.
For Bain Capital, the case is also pretty simple. They’re going to want to put money to work. The credit market turmoil is creating a ton of opportunity in buying stuff distressed and on the cheap. (Bear Sterns e.g.) That’s all well and good, but it’s hard to know where the bottom is with this distressed stuff (GMAC, e.g.) Bain Cap’s model has seemed a little less chop-shoppy (buy cheap, fix, and flip) and tended to be more about helping franchises expand and extend their brands with ruthless efficiency. Given Linked In’s premier brand status and position, and Reid Hoffman’s reputation as an execution madmand, and LI and BC are a great fit.
Rather than assess the state of what all this means for high tech and IPOs, etc., as Bernard does, I’d look at it more simply and optimisitically. It’s terrific for Silicon Valley that a top tier company like LInked In could close a transaction like this with such a top tier private equity firm. Maybe others will get more active.
That this deal wasn’t an IPO is a sign of a weak market and too stringent regulations–hopefully both will get fixed. We need a rebound in the economy and a rewrite of SarbOx, in the coming window so that the rest of us start up guys may one day have a shot at a more open IPO window.
PS–for those with a more political bent on this, to get a more open IPO window will likely want to see oil at or below $100 / barrel. It also will likely highly desire not having a “surge” in the capital gains and dividend taxes.
Multiple choice bonus question–the US Presidential candidate more likely to deliver lower oil and lower taxes and thus better financing conditions for tech and other companies is : John McCain or Barack Obama?