Technology IPO market on the rise on back of pent up stock

17 November 2016 Consultancy.uk

Q3 2016 saw 20 technology IPOs of more than $40 million, globally, with total proceeds hitting $5,3 billion. The number represents an increase in activity relative to previous quarters – and well above recent trends in the volume for IPOs in Q3. North America and Europe saw six and three IPOs respectively, while Chinese companies, following recent troubles on its exchanges, decided the time was right, with nine IPOs booked in the country. 

In the latest edition of PwC’s global technology Initial Public Offering (IPO) review, titled ‘Global Technology IPO Review Q3 2016’, the global accounting and consulting firm considers IPOs with an issue size greater than $40 million*. 

Q3 015-Q3 2016 global tech IPO trend

Global technology IPO trends

IPOs within the global tech sector have been on the increase since the start of the year, with 20 companies going public in the latest quarter, raising $5.3 billion. In comparison, in the same quarter last year, 11 companies went public, raising close to $4.1 billion. Compared to the previous quarter, proceeds increased 264% and the number of offerings increased by 43%. 

One of the major reasons for the sharp increase in IPOs in Q3, even in light of the normal summer slowdown, is, according to the authors, a result of successes in Q2, with companies, whose plans had been on hold, scramble to bring their companies to the public – in particular, the large number of Chinese companies to enter into IPOs reflects pent up demand. The UK remains a notable exception, with uncertainty around the EU referendum votes placing companies in wait-and-see mode. 

Q3 global technology IPO trends 2010-2016

Boosted third quarter

Relative to Q3 2015, the results highlight a general increase in the market activity – from 11 to 20 deals and from almost $4.1 billion raised to almost $5.4 billion. 2014 saw considerably higher deal value, due largely to the float of Alibaba, while Q3 2013, 2012, and 2011 all saw relatively lacklustre deal activity in both volume and value compared to Q3 2016.

Regional analysis of IPO proceeds

Regional analysis

An analysis of the regional distribution of deals highlights that IPO activity has jumped considerably compared to the previous year, as well as previous quarters – at 11 IPOs. Nine of the IPOs took place in China, with Japan seeing two companies join an exchange. Europe saw the same level of activity as the previous year, following two slow quarters, while North America saw six IPOs, compared to one in Q3 2015.

The total value of deals too saw considerable increase on the previous quarters. In Asia, $1.9 billion was raised, up from $530 million the previous quarter – but down slightly on the $2.8 billion in Q3 2015. The European region saw the highest raised funds, at 2.8 billion, up from $1.6 billion in Q3 2015. North America raised around $630 million in the latest quarter, while the rest of the world raised $462 million. 

Subsector distribution Q3 2016

Sector distribution

Different subsectors within the technology industry saw considerable differences in activity. Software saw nine deals, raising a total of around $875 million, with few large scale IPOs, possibly due to continued concern among investors about long-term feasibility; while Internet Software and Services saw four deals valued at around $1.6 billion. IT Consulting & Services raised the most, at around $2.5 billion – largely due to Danish Nets A/S’ $2.3 billion offering. 

Unicorns technology IPOs since Q1 2015

Unicorns

The number of unicorns within the technology sector to become so, or be proven, by IPO stood at two in Q3 2016, following two quarters of no unicorn IPO in the segment. The low level of new public unicorns reflects wider hesitation within the market, based on valuation, as well as more general trends – political and economic – that have put IPOs and further funding investments on hold within the startup and scaleup segment. 

The authors note however, that “2017 is expected to be a better year for Unicorn technology IPOs because political uncertainty surrounding the US elections will be over and investors’ patience will dictate the need to monetize through IPOs.” 

* The report is based on the S&P Capital IQ database industry classifications of technology ,Including Internet Software & Services, IT Consulting & Services, Professional Services (e.g., Application Software, Software Solutions), Semiconductors, Software, Computers & Peripherals, Electronic Computers Manufacturing and Communications Equipment.

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