Facebook Inc’s initial public offering and the IPOs of other social-media companies will lead to a 24 percent decline in secondary transactions this year as fewer big companies remain private, according to Nyppex LLC.
Deal volume will drop to US$7.1 billion this year from US$9.3 billion last year, the Rye, New York-based broker-dealer and research firm said in a report. That follows last year’s doubling of the market from US$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, the world’s most popular social networking site, filed to go public on Feb. 1, seeking to raise US$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 US$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 percent in value on the secondary market last year to US$71.2 billion, according to Nyppex. The biggest gainer was microblogging service Twitter Inc, which more than doubled to US$8.52 billion. Yelp Inc, the consumer-review Web site that filed for an IPO in November, rose 44 percent to US$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 percent return on their investments at the time of the IPO. Yet, those buyers generated only a 22 percent average gain after the lock-up period expired.