IPO or Company Sale – that is the question…

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IPO or Company Sale – that is the question…

2019 has been a great year for tech IPOs in the US.  Notably after an extended period in private ownership, Uber finally listed in May and Slack in June both on the NYSE.  This follows a very busy year in 2018 when a total of 254 tech stocks went public in the US . But how is IPO market performing in the UK?

In the year to date, there have been just 8 tech IPOs – 7 of which were in Q2.  There have been 2 significant UK tech IPOs so far – Finablr (£153m raised) and Trainline (£110m). However other than these two, no other tech company that has IPO’d this year has raised more than £17m. Whilst these figures do not sound particularly impressive, it can be seen from the chart below that 2019 is not untypical and only a relatively few UK tech companies seek a listing each year.

For the avoidance of doubt, these figures include listings of UK/Irish tech companies in the US (Nasdaq/NYSE) and Euronext as well as on the LSE Main Market and AIM.

To get some perspective on this, we have compared these IPO successes with exits from company disposals (source: MergerMarket) over the same period below.

The data indicates that typically 3%-8% of exits of UK/Irish tech companies are achieved by IPO. This has been a consistent pattern for a much longer period – perhaps as long as 25 years. It gives a very clear message on the likelihood of an exit by IPO vs company sale for companies and their investors.

In pitch decks for venture capital, Ascendant all too frequently sees IPO stressed as the preferred, and occasionally only, exit route.  Having successfully executed IPOs we know that they are risky endeavours and only suited to a few technology businesses. Whilst they do at times deliver exit multiples greater than might be paid by an informed industry acquiror, they only provide partial exits for investors and often fail or are delayed not just by company performance but also by market appetite or even just the success or failure of other recent IPOs – see the postponed listings of Palantir and Airbnb….

Exits via a company sale are usually more deliverable – especially if they are planned well in advance and both the company and its shareholders have:

  • identified the right potential purchasers;
  • developed the strategic value of the business;
  • got on buyers’ “radar”;
  • removed/minimised the value handicaps or transaction blockers; and
  • most importantly got the timing right. 

The “to do” list for IPOs is much longer…

Contact us at Ascendant if you are thinking about an exit and we might be able to provide you with a different perspective.

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