Tech IPO activity has fell to the lowest level for the decade in 2016, as political uncertainty mixed with global and sector economic uncertainties. In total there were 53 deals valued at $8.75 billion in 2016, coming in at 42% lower in volume and 68% lower in proceeds than the year previous. The UK was particularly reserved, with no tech IPOs last year.
In PwC’s latest ‘Global Technology: IPO Review’ report, the past year in the Initial Public Offerings (IPO) industry is explored. The study is based on transaction data extracted from S&P Capital IQ and only involved IPOs with issue size greater than $40 million.
The analysis points to a lacklustre 2016 in the tech IPO segment, as both deal value and deal quantity significantly fell below previous years’ outcomes. Total deals volume in 2016 hit 53, with a total value of $8.75 billion, well below the 2015 result of 92 deals valued and $27 billion. The result reflects the lowest outcome for the decade.
The second half of 2016 saw both its highest and lowest level of activity for the year, Q3 say 20 deals closed while Q4 saw just 9. The low level of activity is the result of a range of factors, from the Chinese stock market stutters at the start of 2016, to political uncertainty in the UK and US, both in the run-up to the key event, and a period of ‘wait-and-see’ while the results sunk in. Other concerns that have rattled companies seeking IPO is valuations, which has particularly hit the startup scene, with a number of companies in 2014 and 2015 trading below their first-day closing prices during most of 2016.
In terms of regional distribution for tech IPOs in 2016, a downwards trend is noted in most key markets, outside of Europe, between 2014 and 2016. In 2014 China and the US saw 45 and 37 IPOs in the sector respectively, this fell to 30 and 23 respective the following year, and 18 and 16 respectively last year. Asia without China too saw numbers decline from 19 in 2014 to 9 last year.
Europe, not including the UK, has seen the number of IPOs up slight, from 8 in 2014 to 11 in 2015 and 10 last year. The UK has seen a spectacular drop in IPO activity – largely the result of Brexit – with no tech company opting to go public this year, down from 9 the year before.
The proceeds raised through IPOs has too seen significant falls across the various regions. The US saw just $1.8 billion raised from its 16 IPOs, well below the $8.4 billion raised the year previous on 23 IPOs. China too has seen a considerable slump in value raised, from $29 billion in 2014 to $1.4 billion last year – although 2014 was boosted by the Alibaba mega IPO. Europe has remained relatively stable in terms of value raised, at around $3.5 billion on average over the past three years.
In terms of sector activity last year, ‘internet software & services and software’ was well out ahead, with 32 companies becoming public with proceeds topping $4.6 billion – although the respective average proceeds came in at $145 million, below the total average of $165 million. Semiconductors saw 8 IPOs with a total value of just over $500 million.
The segment that saw the biggest proceeds during the most recent year has been IT Consulting & Services, with saw five deals with a total value of $3 billion – averaging $600 million – although the segment was largely boosted by Nets A/S of Denmark, which raised US$2.4 billion.
The tech IPO segment has enjoyed a strong three year run in Europe, with average proceeds in the past three hovering around the $360 million mark. The result reflects a pickup from the 2011 until 2013 period, when deal activity was less than half on average, and average proceeds stood at around $230 million. Aside from the Nets A/S, other large deals in Europe include Takeaway.com, a food delivery app from the Netherlands, with proceeds of $369 million; German Internet software and services company Trivago NV, raising $287 million; and Global Dominion Access, S.A., an IT and consulting services company from Spain, raising $185 million. IPO activity in the UK hit a spectacular 0 for 2016. The aforementioned Brexit result has been a key motivator for companies, ready for IPO, to postpone the move.
Looking ahead, PwC’s analysts predict that a flurry of tech IPO activity is likely over 2017, as increased certainty in the US political arena boosts confidence. Companies are also likely to move towards IPO with more modest valuations, in line with the profitability potential – further supporting activity in the year ahead. Raman Chitkara Global Technology Industry Leader at PwC adds, “Several factors suggest the 2017 global tech IPO market will be much better: the postelection stock market rally, the promise of US tax reform, general economic conditions, cyclicality of the tech IPO market and pent-up demand for public offerings.”