Online IPO firms merge
Direct IPO has acquired competitor Web IPO, a move that may reflect the beginning of a broader consolidation in direct public offerings.
Under the merger, Direct IPO will get technological expertise to develop investor-friendly tools and editorial content to draw investors to the site, President Mark Perlmutter said. "The acquisition of Web IPO allows us to concentrate on the business of taking companies public over the Internet by combining our financial model and growing staff with Web IPO," he said.
Direct IPO--along with other firms offering direct initial public offerings--helps companies go public by posting their prospectuses on its Web site and sell shares directly to investors. Shares of the newly public company will be sold directly to investors, rather than to institutional investors or underwriters who will then sell them to the public via a broker.
This method of selling IPOs directly requires a lot of exposure to potential investors and, therefore, heavy Web site traffic.
"There is no barrier to entry, so we've seen a lot of direct IPO companies hang out their shingle and say, 'We'll help you do an offering,'" Perlmutter said, noting that a dozen such firms have formed in the past year. "But if they don't have enough traffic driven to the site, then they'll fade away."
Web IPO will be folded into the Direct IPO site, which will feature information on direct offerings, historical information on the companies, and customized information from the Securities and Exchange Commission's financial filings site, Edgar.
Web IPO founders Michael Patchen and Tom Taulli will join Direct IPO as chief technology officer and senior vice president of editorial services, respectively.
Patchen said his company wanted to find a merger partner that could offer strong financial guidance. "We feel comfortable with the technology. But we were rudderless with our business model," he said. "We also weren't knowledgeable with investment banking, and we would talk to a lot of companies that wanted help in going public."
Taulli said Web IPO did not have a broker-dealer license, which would allow it to underwrite IPOs and advise companies on writing their prospectus. But as a newly merged company, Direct IPO is seeking a broker-dealer license.
Direct IPO faces such competitors as Direct Stock Market and IPO Trade.
Despite the view that more consolidation may be on the way, one industry leader said it may not happen for awhile.
"To see any meaningful consolidation, you have to see some meaningful companies in this industry. It's not there right now," said Jason New, senior vice president of Direct Stock Market. "And those companies that are consolidating are doing it because it's a last-gasp economic measure."