PwC: Technology IPO enjoys best year in a decade

24 February 2015 Consultancy.uk

2014 was a record year this decade for tech IPOs with 118 deals contributing $51.2 billion. While the numbers are mostly up per sector for 2014 relative to 2013, the Alibaba deal, valued at $21.8 billion was a massive boost to the sector as a whole.

In a recently released report from PwC, titled “Global Technology IPO Review Q4 and full-year 2014”, the state of IPOs in the technology industry is explored. The analysis shows that the number of IPOs are flying high in 2014 compared to the more reserved period between 2011 and 2013. Last year was the best year yet for IPOs in tech sector, with 118 deals* valued at $51.2 billion. This record represents a staggering 347% increase in IPO proceeds, with number of such offerings up 84%. Compared to the period since 2010, 2014 made up 43% of the total deal value of $119.6 billion and 26% of the number of the 447 deals. The reasons cited by PwC for the improved deal value and number reflect strong capital markets, the reopening of the Chinese exchange and economic improvement in the Europe.

Technology IPOs 2010 - 2014

Regional distribution
In 2014 the distribution of tech IPOs ranged across much of the world, with 19 countries represented in 2014 compared to 15 a year earlier. China has, after re-opening of its exchange, seen a massive year on year change. With 45 listings and their proceeds with $29.1 billion in 2014 – a massive 463% increase in the number of issues (up from 8) and a 2800% increase in value, up from $1 billion. The Alibaba deal however, makes up the largest portion of the increase in value – with the deal worth $21.8 billion.

The US was mainly flat in terms of deals and value, growing from 35 deals in 2013 to 37 in 2014, with the deal value increasing 3% to $7.9 billion. The UK had a massive year, joining the ‘billion league’ in 2014 with the deal proceeds totalling $3.3 billion from 7 deals – up from 730 million in 2013. This saw the UK contribute 48% of Europe’s total proceeds. Japan contributed four IPOs with total proceeds of $4.2 billion, compared to three listings worth $321 million in 2013. South Korea and Israel also raised over a billion in proceeds with three and four listings raising $1.2 billion and $1.1 billion, respectively.

Full year 2014 technology IPOs - Geographic distribution

“The UK tech market continues to produce good, credible IPO candidates and the pipeline remains strong. Further, the IPOs have been focused on retail, consumer and ‘fintech’, confirming that the UK is a leading tech country for consumer adoption of new technologies”, says Jass Sarai Technology Industry Leader at PwC UK.

Contributing sectors
The largest number of deals occurred in the Internet Software & Services subsector, with 2014 seeing 47 deals, raising $33.5 billion or $11.7 billion excluding the Alibaba IPO. This was the biggest subsector in 2014, and contributed 65% of total proceeds and 40% of total listings – up from 43% of proceeds and 38% of listings in 2013. The biggest boost came from Alibaba’s IPO, which raised the highest proceeds in history. The Software subsector came in second, in terms of value – with $7.1 billion in value and over 35 deals in 2014. This subsectors’ contribution to the year’s total was down from 21% in 2013 to 14% in 2014, however, the number of deals was up slight, from 28% to 30% of total deals from 2013 to 2014. 

The Peripherals subsection demonstrated marked improvement in proceeds in 2014, but not in volume. This subsection increased its deal value to $4.7 billion in 2014, made in 5 deals, compared to $1.6 billion in the 8 deals in 2013.

IT Consulting & Services improved in 2014 with proceeds of US$2.2bn from six deals compared to US$538mn from three deals in 2013.

Full-year 2014 subsector distribution

Semiconductors made a comeback in 2014 due in large part to the reopening of the Chinese IPO market. The subsector raised $1.8 billion and had 12 listings during the year, compared to $308 million from four listings in 2013.

Communications Equipment was the only sector which witnessed a drop in total proceeds in 2014 when compared to 2013. The subsector raised total proceeds of $1.1 billion from nine listings during the current year, while in 2013 it raised $1.5 billion from five listings.

According to Raman Chitkara, PwC Partner and Global Technology Industry Leader, 2015 looks like it will be another good year for IPOs in the sector: “Though valuations for private companies remain quite high, thus depressing the need for capital from the public markets, the positive sentiment generated by the high-performing technology IPOs in 2014, the surge in fourth quarter IPOs (34 versus 18 in the third quarter) and the continued strength of the capital markets fuels anticipation that the 2015 technology IPO market will stay at a healthy pace.”

* Issue size greater than $40 million (includes overallotment) and based on trade date.

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