Facebook Readies Public Debut in Strongest IPO Market Since 2007

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Facebook CEO Mark Zuckerberg.

As Facebook prepares for the most widely-anticipated IPO in nearly a decade, the social networking phenom certainly seems to have nailed its timing. The first quarter of 2012 saw the strongest IPO market since 2007, according to a study released Monday by Dow Jones VentureWire. The new IPO boom has been fueled by strengthening capital markets and increasing confidence in the economy — along with an ample dose of self-reinforcing herd-psychology that tends to fuel IPO booms.

In short, Facebook, which would have attracted intense investor interest even without the strong IPO market, could not have asked for a better environment in which to go public.

Twenty venture-backed companies went public in the first quarter of 2012, making that period the most active for public market debuts since the fourth quarter of 2007 — and the most active first quarter since 2000, the study found. Those twenty companies raised $1.4 billion in the public markets in the first quarter, compared to 11 IPOs that raised $768 million in the first quarter of 2011. The strong figures exclude several high-profile IPOs that occurred last year, in a signal of that the mid-size sector of the market is strong.

“Big exits by Groupon and Zynga dominated the end of 2011, but small- and mid-cap IPOs have taken center stage so far this year,” said Zoran Basich, editor of Dow Jones VentureWire. “The public markets proved receptive to a broad range of companies, which is a positive sign for the industry.”

(More: Why Groupon’s Fuzzy Math Should Worry Investors)

Among the companies that went public in the first quarter were local search website Yelp, mobile ad firm Millennial Media, and natural-foods company Annie’s. Millennial Media and Annie’s both enjoyed first-day pops of about 90%, the highest debut jumps since LinkedIn soared 109% in its first day of trading in May 2011. The largest IPO of the period was marketing firm ExactTarget, which raised $162 million in March.

Of course, not all IPOs have fared well recently. Daily deals website Groupon, which went public at $20 per share last November, has seen its stock languish below that level.

The IPO pipeline shows little sign of slowing down. Some 50 venture-backed companies are currently preparing to go public, the study found. The big kahuna, of course, is Facebook, which is preparing to raise at least $5 billion in a deal that could value the company at $100 billion. Facebook’s offering is expected to arrive in May.

Even as the IPO market heats up, the M&A market has cooled down. For the second straight quarter, deal volume declined, the study found. “Greater stability in the public markets, more corporations opening venture units to work closely with startups without acquiring them, and a continued disconnect between entrepreneurs’ asking price and what corporations are willing to pay have contributed to a steady decline in M&A activity,” said Jessica Canning, global research director for Dow Jones VentureSource.

(More: Facebook IPO News Roundup)

The study identified 94 mergers, acquisitions and buyouts in the first quarter that raised $18.1 billion. That’s a 32% decrease in deals but a 42% increase in capital raised from the same period in 2011. Interestingly, Google has cooled off the acquisition spree that made it the most active acquirer of venture-backed companies last year, with 12 deals. The web giant didn’t gobble up any companies in the first quarter of 2012.

But daily-deals site Groupon, which raised $700 million in an IPO last November, has been picking up the slack. So far this year, the company has purchased some six venture-backed companies, twice as many deals as it made all of last year.

Typically, IPO booms tend to last for about 18 months, so Facebook is well-positioned to capitalize on the tail-end of the rush to go public that started in the first quarter of 2011.

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