Facebook’s prospective $5 billion IPO could have major ripple effects on technology M&A and the capital markets. IPOs have helped boost M&A markets in the past — for example by creating public, cash rich acquirers and driving defensive acquisitions by competitors. With Facebook’s IPO expected to be the largest ever in technology, the markets will likely be significantly and positively impacted.
For one thing, hundreds of millions of dollars that are expected to flow to Facebook’s earlier investors will be available for redeployment. The IPO could also help spur massive corporate capital spending, like the market witnessed in 1995 with Netscape’s IPO. Netscape made the Internet easier for people to use and brought about a new wave of supporting industries including web consultants and Web infrastructure providers. Facebook analogously has created a new industry based on social networking. Companies in the enterprise, such as Salesforce.com and BlackBaud, are investing in this technology, and social advertising, shopping and consulting firms are sprouting up as well. The success of the largest social media company in the world can only drive more investment in other social media areas.
The IPO will also support more robust internet valuations and whet risk-taking appetites, increasing the implied value of other internet properties. This should help to re-inflate investor confidence, as well as the stock market. Equally important, from Facebook on down, a market with more highly-valued and better-funded players should help raise tech hiring and, of course, M&A.
Since 2007, Facebook has picked up more than 20 companies (not including patent or domain name acquisitions), many of which have been tiny startups. There is little doubt that bigger and bolder deals are to come, countered by moves from Google, Apple, and the like. Deals beget more deals.
Zuckerberg said in his letter to investors that “We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.” We think a solid showing from a Facebook IPO can help do much more than that.