16th Dec, 2001

 

Today, social gaming company Zynga will float in New York at a valuation of around $10bn, in what will be the last big technology IPO of the year. The offering will act as something of a barometer of current valuations, and investor appetite for this type of business going forward into 2012.

 

As we look into the New Year there are wide-ranging views as to where valuation should sit and how deal volume will be impacted, both from a geographical and TMT sub-sector perspective.

 

In 2011, 55 social media deals were completed, notably Groupon ($377m), Rovio ($42m), Color ($41m) and Hubspot ($32m), totaling $2.52bn*.

If commentators are to be believed, a Facebook flotation in 2012 will value the business at somewhere in the region of $100bn. Based on 2010 revenues of $2bn, it appears that investors are in no doubt about the business’s potential. But at the same time, the likes of Groupon and LinkedIn are now trading below their offer prices – is this a reflection of market volatility, or investor doubts about long-term scalability and profitability?

Investors are also questioning whether the volume of potential opportunities is really there. Recent research showed that 2,749 companies received venture financing in 2010 – more than double the average seen in the 1980s and early 1990s. Are there really more Facebooks and Groupons today than there were Apples and Microsofts in the 1980s?

Despite concerns a recent study suggests it will become easier to finance deals in the next 12 months, and the most bullish respondents were those in the TMT sector. According to the survey, 76% of decision makers in the TMT sector expect to see an improving financing environment, whereas only 5% expect it to deteriorate.

 

Clearly there is a huge disparity in valuations across the TMT sector, with high-profile businesses attracting financing on terms that seem to imply a bubble. In all cases it will take insight, experience and careful due diligence to sort the Amazons from the Boo.coms in 2012.