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Global Technology IPO Review - Q3 2017 Summary

Core Content

The third quarter of 2017 saw a decline in the number and proceeds of global technology IPOs compared to the previous quarter, with 20 IPOs raising US$5.2 billion. This represented a 31% drop in volume and a 15% decrease in proceeds, though the year-over-year decline in proceeds was only 3%. Despite the overall slowdown, the quarter ended with a surge in activity, with 13 of the 20 tech IPOs occurring in September, signaling potential for a stronger fourth quarter.

The Asian region dominated the tech IPO market, accounting for 80% of all offerings, with Greater China (China and Taiwan) leading with 11 IPOs and raising US$1.3 billion. The European market saw two large IPOs, with Landis+Gyr Group AG (Switzerland) raising US$2.4 billion and Rovio Entertainment (Finland) raising US$500.67 million. The US market had only one tech IPO, which was Despegar.com from Argentina, highlighting the challenges faced by US-based tech companies.

Main Points

• Volume and Proceeds Decline: Q3 2017 saw a 31% drop in tech IPO volume and a 15% decrease in proceeds compared to Q2 2017, but only a 3% year-over-year decline in proceeds.
• Unicorn IPOs: Only one Unicorn IPO occurred in Q3, which was Despegar.com from Argentina, not from the US or China.
• Geographic Trends: Asia accounted for 80% of the tech IPOs, with Greater China leading the region. Europe had the highest proceeds, while the US had minimal activity.
• Subsector Performance:
  • Electronics led with 9 IPOs and US$3.6 billion in proceeds, a 200% increase in volume and a 1700% increase in proceeds compared to Q2 2017.
  • Software was second with 4 IPOs and US$718 million in proceeds.
  • Internet Software & Services was third with 3 IPOs and US$616 million in proceeds, but saw a significant decline in both volume and proceeds compared to the previous quarter.
• Year-to-Date Performance: The first nine months of 2017 saw 67 tech IPOs raising US$17.1 billion, the best since 2014, driven by three billion-dollar-plus IPOs including Snap Inc, Landis+Gyr Group, and Netmarble.
• Market Outlook: The macro environment remains positive, with a strong pipeline of tech companies and stable capital markets. The US and Europe are expected to see improved activity in Q4 2017 and into 2018.

Key Financials

• Total IPOs: 20
• Total Proceeds: US$5.2 billion
• Average Proceeds: US$261 million (up 24% from Q2)
• Net Income: 90% of companies reported net income, up from 72% in Q2. Average LTM net income was US$22 million, a 263% increase from the previous quarter.
• Revenue: Average LTM revenue was US$385 million, up 72% quarter-on-quarter.
• EBITDA: Average LTM EBITDA was US$215 million, up 116% from Q2.
• Enterprise Value (EV): Average EV was US$1,655 million for Electronics, US$1,027 million for Software, and US$752 million for Internet Software & Services.

Subsector Insights

• Electronics:
  • 9 IPOs, US$3.6 billion in proceeds
  • Highest average LTM revenue (US$678 million), EBITDA (US$74 million), and EV (US$1,655 million)
  • 6 out of 11 Greater China IPOs were in this subsector
• Software:
  • 4 IPOs, US$718 million in proceeds
  • Second-highest average EV (US$1,027 million)
  • Average LTM revenue (US$135 million), EBITDA (US$30 million), and net income (US$25 million)
• Internet Software & Services:
  • 3 IPOs, US$616 million in proceeds
  • Declined by 67% in number of deals and 59% in average proceeds from Q2
  • Average LTM revenue (US$198 million), EBITDA (US$30 million), and net income (US$25 million)

Valuation Metrics

• EV/LTM Revenue:
  • Electronics: 22.4x
  • Software: 7.6x
  • Internet Software & Services: 5.9x
• EV/LTM EBITDA:
  • Electronics: 22.4x
  • Software: 36.5x
  • Internet Software & Services: 27.4x

Methodology

• Analysis is based on data from S&P Capital IQ.
• Only IPOs with issue size greater than US$40 million (including over-allotment) are included.
• Data covers the period from 1 April 2017 to 30 June 2017 for Q3 2017.
• LTMs (Last Twelve Months) are used for financial metrics.
• All monetary values are in US dollars unless otherwise specified.

Key Figures and Trends

• Asia:
  • 16 IPOs, US$1.7 billion in proceeds
  • Greater China had 11 IPOs and US$1.3 billion in proceeds
  • South Korea had 3 IPOs, US$260 million in proceeds
  • Japan and India each had one IPO
• Europe:
  • 2 IPOs, US$2.9 billion in proceeds
  • Switzerland and Finland led with Landis+Gyr and Rovio
  • UK remained absent due to Brexit-related challenges
• US:
  • Only 1 tech IPO, Despegar.com from Argentina
  • Proceeds were US$252 million
  • Despite strong capital markets, poor performance of previous Unicorns dampened investor sentiment

Conclusion

The Q3 2017 global tech IPO market showed a decline in activity compared to the previous quarter, but the year-over-year results remained relatively stable. The shift in the center of gravity from the West to the East was evident, with Asia accounting for the majority of IPOs and proceeds. The Electronics subsector emerged as the top performer, while the US market remained subdued. With a positive macro environment and a robust pipeline, the market is expected to improve in the coming quarters.