The US stock market has experienced a tumultuous wave of initial public offerings (IPOs) in recent years, reflecting both the opportunities and challenges in the broader financial landscape. In 2020, a record 480 IPOs were filed, an impressive 106.9% more than the previous year, and 20% higher than the former record set in 2000. The record was shattered again in 2021, with an astonishing 1,035 IPOs, marking a 120.4% increase from 2020. However, the surge was met with a dramatic decline in 2022, as the market cooled to 181 IPOs, an 82.5% decrease from the prior year. As of August 21, 2023, the current tally stands at 104 IPOs, 27.3% less than at the same time in 2022. These figures underscore the IPO landscape’s dynamic and often unpredictable nature, pointing to a complex interplay of economic, regulatory, and market forces that continue to shape investment opportunities in the tech sector in the United States.
The big IPOs on the horizon for 2024 include names such as ARM, Stripe, Klarna, Reddit, and Databricks, with Databricks and ARM garnering a significant amount of media attention given their size and the fact that both companies are at the epicenter of buzz in the industry around AI, data platforms, and semiconductors.
Another Big IPO Is Hiding in Plain Sight
Back on February 17, 2023, KKR-backed BMC Software confidentially filed for an IPO, and the market coverage needed to be more extensive with only 16 news articles, according to Google News. While the tech press is fickle at the best of times, this scant coverage does not do BMC justice by any measure.
BMC is an industry stalwart with a storied history spanning the last four decades. Still, this IPO has yet to capture the mindshare of the industry commentators looking ahead to what 2024 will bring for the IPO landscape.
BMC Software, a Houston-based IT infrastructure and operations service software vendor, has strong market leadership positions in its markets, a loyal customer base, and a growing new logo business. The path to a 2024 IPO has been evident to those watching the company. In 2018, private equity giant KKR & Co. (KKR.N) acquired BMC for $8.5 billion, including debt. Bain Capital had previously owned the company. Private equity firms are looking for a positive exit, and KKR will be looking to maximize its return to bring BMC to the market in 2024.
The company continues to evolve with a robust history of innovation both organically and through a range of acquisitions, including Integrity Solutions, Remedy Software, Compuware Corporation, and most recently, Model9. BMC claims 86% of the Forbes Global 50 as customers, and its focus on expanding cloud-based offerings, particularly the 2020 launch of the SaaS-based BMC Helix Control-M application workflow orchestration platform, which gained industry recognition as the leader in Forrester AIOps Wave for its AIOps offering, is a testament to its adaptability and market position. BMC Software recently reported revenue figures at an impressive $2.4 billion. This financial strength is mirrored in its substantial workforce, with a current employee headcount of 6,000+, reflecting the company’s commitment to growth and innovation.
How to Value BMC
When you compare BMC’s projected market valuation of $15 billion with the public market competitors, this potential listing figure looks light to me. See the table below.
All data is accurate as of August 21, and the employee count is based on LinkedIn data.
BMC Software, while positioned at a scale smaller than ServiceNow, and with a focus more narrowly defined within the IT infrastructure and operations domain, aligns closely in size with peers like Splunk, Dynatrace, and Datadog. Discounting Datadog’s atypical 23x revenue multiplier as an outlier, the industry standard appears to settle at an average 8.6x revenue-to-market-cap multiplier. When this benchmark is applied to BMC’s latest revenue figures, the resulting projection places the company’s market capitalization at an estimable $20.64 billion. This analysis underscores BMC’s standing as a significant player in the field, drawing comparisons with other industry giants and shedding light on the company’s potential market valuation.
Looking Ahead
As the US navigates a perplexing macroeconomic landscape in 2023, the Federal Reserve finds itself at a crossroads. With the Jackson Hole meeting looming later this month, Wall Street and financial observers across the spectrum are eagerly anticipating insights that might illuminate the path ahead. Amid recent predictions of a looming recession, the primary concern is whether the nation’s economy will achieve a soft landing, or face a more turbulent descent.
Against this backdrop, the IPO market follows. With a number of large tech IPOs on the docket for 2024, many will be looking to headline-grabbing companies such as Databricks and Stripe, but this would ignore a proven, profit-generating company with a strong position in high-growth markets such as service management and observability.
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