Tech IPOs worth $40 million or more hit $25 billion globally

28 March 2018 Consultancy.uk

Tech IPOs saw an 85% increase from 2017, with the number of deals worth more than $40 million hitting 100 for the year. The total proceeds from these transactions amounted to $25 billion. IPOs in Europe meanwhile raised almost $4.8 billion for 2017.

The technology sector is faced with increased pressure on reputation, as various scandals, from data misuse to hacks, come to light. The sector has also met with headwinds from wider social impacts, while company valuations – particularly where there wasn’t a clear business case – have seen venture capitalists enter a wait-and-see mode.

The latest edition of PwC’s ‘Global Technology IPO Review’ report explores the most recent year for initial public offerings (IPOs) in the technology sector. The research is based on S&P Capital IQ data related to IPOs across the globe which raised in excess of $40 million during 2017.

Global tech IPO

Overall the number of IPOs in the technology segment increased by 85%, from 54 in 2016 to 100 last year. The total number was close to 2015’s 92, but still below the recent peak in 2014 when there were a total of 118 IPOs in the sector. The total value of the deals comes in at $25 billion; a strong increase from 2016 when a total of $9.3 billion was raised, but slightly below the 2015 haul of $27 billion.

The reasons for the upswing in activity and value, according to the firm’s analysist, is a resurgence in activity in the US market, which included the IPO of Snap, and a continued strong performance in the Asian market – the latter generating 65 of the IPOs and $11 billion in total proceeds.

Half yearly IPO 2011-2017

The gains in value and volume for 2017 were sustained throughout the year, with around $12 billion recorded in H1 over 47 IPOs and $13 billion in H2 across 53 deals. This is a substantial increase from last year, up 450% for H1 and 74% for H2. Overall deal activity in 2017 was similar to 2015, albeit with lower deal values.

Commenting on the result for the period, Raman Chitkara Global Technology Industry Leader, said, “The tech IPO market rebounded in 2017 after a weak 2016, producing the second-highest number of listings and the third-highest gross proceeds of the last ten years. However, a lack of major Unicorn IPOs and a lukewarm after-market performance of many IPOs, created a clear sense of underachievement. Looking ahead, with strong economic indicators across the globe, 2018 promises to build on the momentum of 2017.”

Full-year 2017 subsector distribution

In terms of the segment with the highest total proceeds, Internet Software & Services was far out ahead with more than half of total proceeds, at $13.7 billion across 27 IPOs. Electronics companies followed, with 16 going public raising $4.1 billion. Software, meanwhile, saw around $2.1 billion raised across 17 deals. Semiconductors was the fourth largest segment, raising $1.9 billion in 19 deals.

Internet software & Services was boosted by a large number of mega IPOs, including Snap, Netmarble Games Corporation, Delivery Hero, China Literature and Qudian. The segment saw declines on 2016, however, at 33% in terms of volume and 14% in terms of proceeds. Electronics and semiconductors, meanwhile, had the best run in terms of proceeds and volume in the last six years.

Europe and UK

In terms of Europe (excluding the UK), relatively modest activity was recorded, at 6 IPOs totalling $4.3 billion for 2017, up slightly in terms of value from 2016, when $3.6 billion was recorded. The activity was relatively in line with previous years, although 2017 was partly sustained by larger average deals.

European and UK figures

Last year, UK exchanges also saw a considerable upswing in IPOs. The trend, in line with a similar upsurge across Europe, comes as companies initially deterred from investing by Brexit uncertainty, sought funding through IPOs,with total funds raised increasing by 158% on 2016 to £40.3 billion. However, according to PwC’s study, in terms of technology related IPOs, the UK saw relatively slow results, with 2 deals valued at $429 million in total recorded for the year – although up from 0 deals the previous year. Uncertainty around Brexit has seen many companies shelve IPO plans until more clarity is obtained.

Raman Chitkara, PwC Global Technology Industry Leader, said, “The tech IPO market rebounded in 2017 after a weak 2016, producing the second-highest number of listings and the third-highest gross proceeds of the last 10 years. With the global economy embarking on growth momentum and major markets demonstrating a high level of optimism, 2018 has started on a positive note for tech IPOs.”

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.