Sequentially, the tech IPO market took a nosedive from 22 IPOs worth US$10.8 billion in Q4 2015 to 10 IPOs worth US$769 million in Q1 2016 – a 93% decline in proceeds and a 55% decline in number of IPOs. Total Q1 proceeds for the technology sector were weaker than any of the previous five quarters. The second worst quarter in the previous five was Q3 2015. It had one more IPO – 11 total – than Q1 2016, but the proceeds were 533% greater at US$4.1 billion.
In line with previous quarters, the Internet Software & Services subsector led Q1 2016 with three IPOs and US$280 million in proceeds. The Semiconductors and Software subsectors had two IPOs each with proceeds of US$125 million and US$103 million, respectively. Communications Equipment had the second highest proceeds at US$132 million – from one IPO. IT Consulting & Services and Electronics had one IPO each with proceeds of US$66 million and US$64 million, respectively.
Except Software and Communications Equipment, all subsectors posted year-over-year declines in numbers of IPOs, with Internet Software & Services seeing the greatest drop at a 63% decline.
The analysis of subsector distribution of IPOs reflects stalled activities in the US and UK as well as relatively less action in China. The overall weak performance of the subsectors is a result of the challenges discussed earlier in the report, primarily the global macro-economic situation, uncertainty over monetary policy in the US and Europe and fears of a British exit from the EU.
As noted, the geographic distribution of tech IPO activity shifted from its traditional markets in the US, UK and Germany to Asia and smaller countries in Europe. China led with three IPOs, raising US$267 million. The biggest IPO–Tongyu Communication Inc., with proceeds of US$132.1 million -- was listed on Shenzhen Stock Exchange. India had two IPOs, listed on the Bombay Stock Exchange. Japan issued two IPOs and Malta, Sweden, and Ireland had one IPO each.
The US had no tech IPOs. Lower oil prices, US monetary policies, negative Chinese macro-economic numbers and other factors are impacting the market. Some US companies that were headed toward the IPO market have taken a wait-and-see policy due to lower valuations in recent months. But going slow might not remain an option for some technology companies that need cash because they are also seeing reduced VC and PE funding.
The UK, which had many tech IPOs in the last few quarters, also drew a blank. Volume and value of IPOs on the London Stock Exchange (LSE) is expected to continue to fall as doubts rise over interest rates in the UK. Elections in the US and France and the possibility of the UK leaving the EU, are also dampening the market.
“Despite a relative shutout for US technology IPOs in the first quarter of 2016, there is no shortage of companies in the pipeline that are eager to test the waters and pursue an IPO path to growth. With one technology IPO already taking place in the second quarter, we are starting to see some life return to the tech IPO market.”
– Raman Chitkara, Global Technology Industry Leader, PwC
“The uncertainties in the domestic stock market were fueled by the postponement of the launch of the new board of Strategic Emerging Industries and the new registration-based system, together with the control of new share issuance. Establishment of a multi-layer capital market, especially the stratification of the New Third Board in China, would be the next highlight of the China market. However, we anticipate the number of IPOs in China’s domestic capital market could reach a historical high given the significant pipeline."
– Jianbin Gao, Technology Industry Leader, PwC China
“India’s thriving technology start-ups and eCommerce sector, which has mainly grown on the back of venture capital and private equity funding, saw two major public listings this quarter. With strong government focus on start-ups in India and India's stock market regulator, SEBI, announcing a fresh set of norms to facilitate easier listing, there is an expectation that more start-ups will list in the future—and will do well."
– Sandeep Ladda, Technology & eCommerce Sector Leader, PwC India
“PwC’s Global Technology IPO Review includes IPOs that raise US$40 million or more. In Q1 2016, two Japanese IPOs met that threshold—Akatsuki and UMC Electronics. Akatsuki provides social gaming app services for smartphones and UMC Electronics provides electronic manufacturing services. In all, there were eight tech IPOs among the total of 22 IPOs in Japan during the quarter. The tech sector produced more IPOs than other sectors, and continues to lead the Japanese market along with the consumer service sector."
– Masaru Koshida, TMT Industry Leader, PwC Japan
“The UK IPO market has experienced momentum in recent quarters, but is clearly paused for now. Many companies continue to evaluate their strategic options, including an IPO, but the market is currently challenging due to various uncertainties. Once these uncertainties are clarified, we expect positive sentiment to return and the pipeline to improve.”
– Jass Sarai, Technology Industry Leader, PwC UK
“With pent up demand, we expect the remainder of 2016 and 2017 to present more opportunities for companies looking to go public. Companies focused on IPO readiness, operational maturity and profitability will be best positioned when the window opens again. Finance effectiveness, tax, human resources, systems and SOX compliance are just some examples of critical areas that need to be addressed in preparation for an IPO.”
– Alan Jones, Deals Partner, PwC US