Okta, a San Francisco-based identity management vendor, has hired Goldman Sachs to lead it through an initial public offering (IPO) or possible sale, CMSWire has learned.
The news broke last night, just hours after Twilio, a cloud communications platform, announced it will raise more than it expected in its IPO scheduled for today. Twillo is offering 10 million shares at $15, above the range of $12 to $14.
This has been a tough year for tech IPOs. Twilio is only the third tech IPO of the year and the first IPO to price above its proposed range since December. More companies are staying private longer, thanks to poor market conditions and lucrative fundraising rounds in the private markets.
So for Okta, the timing for an IPO isn't ideal. However, there may never be a better time, a source familiar with the matter told CMSWire.
Okta more or less defined its market — securely connecting people to technology — when it was founded in 2008. Today that market is getting crowded, and some of the biggest companies in enterprise technology, including Microsoft, IBM and Salesforce, are competing for attention.
In its most recent Magic Quadrant for Identity and Access Management, Worldwide, Gartner named Okta, along with Microsoft and Sunnyvale, Calif.-based Centrify, as market leaders, and Okta achieved the highest overall position for its ability to execute for the third year in a row.
But Constellation Research founder and analyst R "Ray" Wang told CMSWire that the future is uncertain. The market which Okta pioneered is "quickly becoming commoditized by Platform-as-a-Service (PaaS)" offerings, meaning that Software-as-a-Service (SaaS) and cloud vendors are building identity management into their own offerings. Ditto for mobility providers like VMware.
Tensions between Okta and Microsoft made headlines earlier this year. As CMSWire contributor Steven Pogrebivsky explained, Microsoft uninvited the identity management vendor and long-standing Microsoft partner from exhibiting at this fall's Microsoft Ignite conference in Atlanta. Initially, Microsoft said the action was due to “broad competition between our companies in the mobility solution space.” When the news got out, Microsoft quickly reversed course and re-invited Okta to sponsor.
Okta co-founder and CEO Todd McKinnon seems to have only spoken about an IPO as an exit. But given the recent history of tech IPOs, a sale to a private equity firm may be a better option.
Consider what has happened to the share prices of last year’s newly public tech companies. Box shares have fallen to around $11 from a high of $24.73 on launch day in January 2015. now it hovers in the $11 range. Square shares fell from $14.78 at launch last November to $9.28 yesterday. Although tech analysts and end users like these products, they have less cachet with investors — possibly because they've yet to turn a profit.
Given the market, a private equity sale might be the best way forward, some analysts concur.
Three of the top software deals in the U.S. this year have been take-private transactions:
- Under pressure from hedge fund Elliott Management Corp., Qlik Technologies greed to sell itself to private equity firm Thoma Bravo for about $3 billion.
- Vista Equity Partners is acquiring Marketo in a deal worth $1.79 billion
- Vista dropped $1.65 billion to acquire Tysons Corner, Va.-based Cvent, a cloud-based enterprise event management company