San Francisco: Facebook Inc's initial public offering (IPO) and the IPOs of other social-media companies could lead to a 24 per cent decline in secondary transactions in 2012 as fewer big companies remain private, according to Nyppex LLC.
Deal volume will drop to $7.1 billion (Dh26.05 billion) this year from $9.3 billion in 2011, the Rye, a New York-based broker-dealer and research firm said in a report. That follows last year's doubling of the market from $4.6 billion in 2010.
"The reversal is based on expected exits by many of the largest consumer web and social-media companies, and a decline in large private companies with motivated selling shareholders," Nyppex said.
Facebook filed to go public on February 1, seeking to raise $5 billion in the largest web IPO on record. That follows share sales last year of professional-networking site LinkedIn Corp, daily-deal site Groupon Inc and social-gaming company Zynga Inc.
Those companies each reached valuations of more than $1 billion on the private markets through trading on exchanges like SecondMarket Inc and SharesPost Inc and through transactions where early employees and equity owners sold to investors like Digital Sky Technologies and Elevation Partners LP. Primary deals, by contrast, involve buying newly issued stock directly from the company.
Facebook jumped about 73 per cent in value on the secondary market last year to $71.2 billion, according to Nyppex. The biggest gainer was microblogging service Twitter Inc, which more than doubled to $8.52 billion. Yelp Inc, the consumer-review website that filed for an IPO in November, rose 44 per cent to $705 million.
Secondary-market investors are typically treated like company insiders and barred from selling their stock during the so-called lock-up period, lasting six months after the IPO.
Secondary buyers of a handful of social-media companies, including LinkedIn, Groupon and China's Renren Inc, generated an average 70.7 per cent return on their investments at the time of the IPO. Yet those buyers generated only a 22 per cent average gain after the lock-up period expired, Nyppex said.
The firm's estimates apply to investors who purchased their shares by March 31.
"This analysis illustrates the importance of risk management for shareholders of private consumer web and social-media companies that complete initial public offerings under current market conditions," Nyppex said.
- $4.6b: deal volume in 2010
- 73%: rise in Facebook shares on secondary market
- $705m: share value of Yelp Inc after IPO launch