Fewer than one in ten private equity professionals see an initial public offering (IPO) as a credible option for technology companies in the next 12 months, despite efforts by the London Stock Exchange to encourage more technology companies to go public.
In a survey of private equity and venture capitalist professionals by financial adviser Grant Thornton, 93 percent said that a trade sale was the most likely exit for private equity firms who have invested in the technology sector. Nearly a quarter (23 percent) predicted a sale to another financial investor with only 8 percent believing exits will be achieved via an IPO.
The news comes despite the fact that Downing Street is working with the London Stock Exchange on a new set of IPO regulations, designed to encourage internet and technology companies to float in the UK. The proposals include reformed eligibility criteria, reporting requirements and rules on “free float”.
Wendy Hart, head of technology at Grant Thornton, told the Financial Times that there has historically been a lot of tech action on AIM (a sub-market of the London Stock Exchange that allows smaller companies to float shares with fewer regulatory barriers), but this is still not on the agenda for most.
She said that cost and lack of liquidity are still major barriers for young technology companies seeking an IPO.
Meanwhile, tech M&A firm Magister Advisors predicts that at least one European next-generation technology company will achieve a $1bn value through a sale, IPO or fundraising in 2013.
According to Victor Basta, managing director of Magister Advisors, momentum has been building in this area for several years, and VC-backed technology exits in Europe reached a high water mark against the US in 2009-10, with European exits having a value of around $15bn against $30bn in the US – despite having only a fifth of the resources.
This was largely thanks to a focus on new business models based on ‘Big Data’ analysis, as well as business models that feed off high levels of social engagement and incentivise the use of mobile technology, according to Basta.
A sharp increase in growth capital made available to European start-ups from Silicon Valley investors, and affordable and more stable talent in Europe have also catalysed the creation and development of this next wave of companies.
“We now have mobile ecosystems from Apple and Google, which enable businesses to reach hundreds of millions of consumers almost overnight. It no longer matters where the company is based. What matters now is the quality of the product and the quality of the idea,” said Basta
Magister Advisors believes the most likely companies to achieve a $1bn financial event in 2013 are Wonga, Klarna, MindCandy, Shazam, Huddle, Just-Eat and Rovio.
“What is remarkable about these companies is just how fast they have grown in the face of a sustained worldwide economic slump, and how quickly their company values have grown in such a short time,” said Basta.