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Nanotechnology has never experienced a high-profile exit. Pundits consider nanotechnology, a field dealing with substances smaller than a micrometer for applications as diverse as medicine, semiconductors and cosmetics, interesting research but meagre business. Five years ago nanotechnology enthusiasts touted these miniscule particles as a means to alter mankind by manipulating DNA to create “nanobots,” “shaping” atoms into new substances and the like. But venture capitalists burned by the tech bubble showed reserved interest, and since then, some entrepreneurs have found nanotech useful in such mundane products as paint, insulation and golf balls.
However, two executives and a banker in the nanotechnology space speculated that within the next 12 months, the sector could experience its first few splashy IPOs or buyouts.
According to one executive and banker, the nanotechnology companies with the most traction are privately-held coatings concern Inframat in Connecticut, and semiconductor and components makers NanoOpto in New Jersey, NanoFilm in Ohio, Nanoink in Illinois and Nanodynamics in New York. An executive said these five startups have genuine sales, and attract real investor and banking interest when many nanotech companies are three-person shops doing research and “publishing press releases as if they were big companies.”
Barry Weinbaum, CEO of NanoOpto said bankers have “pounded” on NanoOpto’s doors for years hoping to convince it to sell or go public, but the company has waited for IPO-ready earnings, which until last fall, meant USD 100m in annual revenue and eight quarters of profitability. Since last fall, some communications systems makers, notably Riverbed Technology and Isilon Systems, have undergone extremely successful initial public offerings (IPOs) with financial performances that lagged expectations. Still, Weinbaum said NanoOpto might delay an exit until the market witnesses successful IPOs among components makers.
The banker theorized that this year could prove the turning point for companies such as NanoOpto. “This is the best IPO market for technology-based companies since 2000, and it’s likely we’ll see a meaningful number of startups go public,” he commented. Although to date, some nanotech concerns have gained public listings through reverse mergers – in other words, the startups bought a defunct but publicly-traded business for next-to-nothing and received, in return, private equity investments – the banker said the more lucrative way to exit is through an IPO. “The higher quality companies always choose an IPO,” he said.
At executive at one of the startups named as an attractive target cautioned that the costs associated with a public listing has dissuaded, at least his company, from serious IPO interest. “I think a lot of us are disappointed with the expense of Sarbanes Oxley compliance. We have been shot down from any reasonable valuation, so a lot of us are thinking about other ways to grow the business,” he commented. He suggested M&A and private equity investment as a superior alternative to an IPO at this time, when, according to him, values are still low.
Two executives said a few conglomerates have interest in making acquisitions of nanotechnology concerns, one asserting that potential buyers sat on the sidelines of the Nanobusiness 2007 Conference three weeks ago. One executive speculated that the potential buyers could be chemical and industrial concerns BASF in Germany, Dupont in Delaware and 3M in Minnesota.
Weinbaum described NanoOpto as more likely attracting optical chip and systems makers. Some acquisitive companies in the optical chip realm are JDS Uniphase and Finisar in California.
Perhaps coatings and chips aren’t as fun as a robot with, for good or ill, genes, but coatings and chips can generate sales enough to IPO.
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