Lackluster US and China slow technology IPO market

30 November 2015 Consultancy.uk

Q3 2015 saw 11 technology IPOs, of more than $40 million, globally, with total proceeds hitting $4,093 million. The number represents a considerable decrease in activity relative to previous quarters – although in line with recent trends for Q3. Japan and Europe both saw three IPOs, while recent troubles on the Chinese exchanges have dampened enthusiasm for IPOs, with just two booked in the country.

In recent report by PwC, titled ‘Global Technology IPO Review Q3 2015’, the accounting and consulting firm reviews the Q3 technology Initial Public Offering (IPO) market, focusing on IPOs with an issue size greater than $40 million. The report is based on the S&P Capital IQ database industry classifications of technology, and covers IPOs in Internet Software & Services, IT Consulting & Services, Professional Services (e.g., Application Software, Software Solutions), Semiconductors, Software, Computers & Peripherals, Electronic Computers Manufacturing and Communications Equipment.

Q3 2014 - Q3 2015 Global technology IPO trends

Global technology IPO trends
IPOs within the global tech sector have seen considerable declines in the third quarter of this year, with 11 companies going public, raising $4.1 billion. In comparison, in the same quarter last year, 18 companies went public, raising $24.8 billion. Compared to the previous quarter, proceeds declined 34% and the number of offerings fell by 69%.

One of the major reasons for the sharp decrease in IPOs in Q3, besides the normal summer slowdown, is, according to the authors, the lackluster numbers within the Chinese economy – cascading through the exchanges, leading to spectacular decreases in market cap, impacting IPO plans – as a result only two Chinese technology IPOs occurred within the past quarter.

Q3 2015 global tech IPO trends

Average tech IPOs
The average proceeds have stayed relatively stable compared to Q3s in previous years. Q3 2015 had an average IPO value of $186 million, up from last year’s $112 million and 2013’s $90 million. Total proceeds stood at around $4 billion, while down considerably on last year’s $24 billion, are up compared to 2011, 2012, and 2013 which saw around $1.5 billion, $1 billion and $1.2 billion respectively.

Global technology IPO trends

9 months year-on-year
A total of 70 technology companies went public in the first nine months of 2015, more than the number of IPOs in the full year of 2013 as well as nine-month totals for 2011 and 2012 too. The total proceeds raised in the first nine months of 2015 was $16.3 billion, a 179% increase from the same period in 2013. Technology IPO results in 2014 were however heavily skewed by the third-quarter mega IPO of Alibaba ($21.8 billion).

year-over-year comparison by geography

Geographic distribution
Japan led the world in tech IPOs in Q3 recording three offerings and proceeds of $759 million. Europe too saw three IPOs, one in Germany and two in the UK (Kainos Group and Gloo Networks). Proceeds in Europe increased significantly on last year’s $59 million (to $1.6 billion), due for the most part to German Scout24’s mega IPO. China’s two IPOs for around $1.4 billion pale in comparison to the value generated by Alibaba last year.

Q3 2015 IPO subsector distribution

Sector distribution
In terms of IPO proceeds by sector, Internet and Software Services (Scout24 AG and Itokuro) lead the pack, with two deals earning almost $1.6 billion in proceeds, followed by Communications equipment, where one IPO, China Railway Signal & Communication Corporation, raised $1.4 billion when it came to market. The most IPOs took place in Software, although the proceeds generated only $289 million. Semiconductors was the category with the lowest proceeds (in which there was an IPO).

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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.