IPOs grind to a halt, leaving no quick exit for tech investors

18 Apr 2016

Investors in tech companies, especially unicorns, aren't likely to get that big pay day any day soon as the market for IPOs hits a chill

The first quarter of 2016 saw IPOs grind to a halt, with proceeds from IPOs down two-thirds compared with the same time last year, according to PwC. In Europe, IPO proceeds were down 80pc.

PwC revealed that global IPO proceeds in the first quarter dropped by almost 65pc to €12.5bn, the slowest start to a year since 2009 when there were 69 IPOs.

European IPO proceeds were down nearly 80pc to €3.5bn compared to Q1 last year, after two years of buoyant IPO activity.

‘We expect that there will be increased volatility where people won’t want to price IPOs’

London dropped 50pc year-on-year (18 IPOs raised €2.3bn or £1.8bn), mirroring similar declines across all of Europe.

The slowdown in IPOs mirrors a general decline in the amount of venture capital funding, which is also experiencing a chill with funding down to $25.5bn in the first quarter.

With investment levels falling, unicorns getting devalued and a weak appetite for public market flotations, the pressure will be on existing companies whose investors are waiting for an exit, ultimately chilling the mood for investment.

IPO pipeline

“Despite challenging market conditions, companies with strong equity stories and good management teams have successfully completed their IPOs,” said Denis O’Connor, transaction services partner, PwC Ireland.

“The pipeline of companies preparing for IPOs towards the end of 2016 and into 2017 looks generally healthy, but as the IPO window begins to close as we get closer to the EU referendum and traditional summer break, we expect that there will be increased volatility where people won’t want to price IPOs.”

At least nine European IPOs were publicly postponed or withdrawn in the first quarter (16pc of all deals), compared to five (6pc) in Q1 2015, and trade sales continued to divert owners from the listing route.

O’Connor said the expectation is things may change later in the year and it may be business as usual for IPOs.

“This quarter has proven to be challenging for IPO activity but that’s not to say we don’t see a diverse pipeline for the end of 2016 and early 2017. We expect that candidates in the financial sector, mainland European privatisations and strategic demergers, will contribute their fair share to overall annual proceeds.

“But with the EU referendum looming, uncertainties still remain, and we do not expect to reach the €10bn mark before the summer break, and this reflects a return to the levels seen in the first half of 2013, before the recent boom of the last two years.”

Bull and bear image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years