(By Robin Wauters, Tech.eu) – One of the many problems with the European technology scene has historically been a lack of exits. Things are getting better, as we highlighted in a recent in-depth report on the topic, but huge challenges remain.
For one, it’s undeniable that there are very few European tech initial public offerings (only 4.75% of the exits we tracked in 2014 were IPOs), and it doesn’t look like things are getting better fast.
In a somewhat bizarre article on Bloomberg touting the performance of recently listed European tech companies published earlier this week, those high-profile offering delays somehow remained unmentioned – as did relatively successful IPOs such as Showroomprive, Tobii and Scout24, which made the claim even odder.
All in all, the recent IPO postponements paint a picture of a difficult market for European tech companies to list in. The question is how bad things are (and how long they will remain so).
We sought out the executives at two major stock exchanges who are responsible for European listings, to learn their perspective on the topic. Below are the views of Alain Baetens, Director Listing & Issuer Services at Euronext and Adam Kostyál, Senior Vice President of Listing Services, Europe at NASDAQ.
Tech.eu: The last-minute cancellations of European tech company IPOs recently – is this part of a wider, perhaps even global trend or is there something about European tech firms and IPOs that simply doesn’t ‘work well’?
Alain Baetens: “Naturally, we are always very disappointed when a company withdraws their IPO in the last stages before floating, but we should stress that the IPO of Deezer as an example has been delayed and not cancelled. It is a one-off case in a highly competitive environment and not a reflection of market conditions.”
Adam Kostyál: “Overall the U.S. market has its benefits in terms of the depth of investors, analysts and peers, which provides the companies a bigger market to work with when it comes to technology IPOs. The 130+ European technology companies either listed or dual-listed on Nasdaq are a tribute to this.
Despite a decrease in the number of technology IPOs this year, the interest remains strong and the pipeline for technology listings is building up. A number of technology IPOs have launched this year on both on our Nordic main market and on First North, Nasdaq’s European growth market.”
The announcements from the aforementioned companies always come with statements about unfavourable market conditions or high volatility. Is that correct in your view, and what does it actually mean?
Baetens: “We have enjoyed a strong year so far for our Listings business, with 43 IPOs already this year. We remain confident that our pipeline of IPOs scheduled for the rest of the year remains strong, across our European platform.
Specifically on the tech front, we have seen in the US market a slowdown in tech companies coming to market, but we remain convinced nevertheless that the tech sector is one of high potential in Europe, and we remain committed to continuing our investment in this sector.
Twenty SME Tech companies listed YTD 2015 on Euronext markets, raising together almost €600 million. In 2014, 24 SME Tech companies listed on our markets, raising €530 million. Both years consolidate a significant acceleration with previous years, and we don’t think the momentum has stopped. See Showroomprive’s recent IPO as an example.”
Kostyál: “We cannot comment on a company’s decision to delay a listing.”
Is there also simply a lack of interest from public market investors and traders in tech companies, and more specifically European ones (which they may not be as familiar with as American tech firms)?
Baetens: “In parallel of certain hypes, it’s important the market recognizes the robustness of certain business models, the long-term solidity of tech (disruptive) innovations, and quality of their strategies, amid a wide range of new technologies arising almost every day.
We will probably see IPO windows for high tech – high growth companies shortening, but rising and disappearing fast, due to a.o. a lack of deep comprehension of the sustainability of the business models at generally high valuation multiples (compared to other industries), and also lack of real peers in one or other markets (which raises the risk of being affected by poor results, coverage or perception of other tech companies, listed or unlisted, and not necessary in the same sector).
This is true for the US market and the EU market. This is also one of the reasons why we put forward pre-IPO training programmes for tech entrepreneurs and specific initiatives for listed companies (helping them to raise their profile and investors to understand their businesses).
The investor market in the EU is certainly not inferior and many US based investors find their way to quality tech IPO’s.”
Kostyál: “We have seen diversity between large-cap and small-cap companies across all sectors – not just technology – as indexes like the Nasdaq-100 and S&P 500 are reaching all-time highs, while more broader-based indexes that represent small and mid-cap companies are underperforming.”
Do you believe there are there other factors involved in these aforementioned companies’ decisions to delay their IPO plans?
Kostyál: “We cannot comment directly on their decision. That said, there are two recent trends in the private market: growth companies staying private longer and increased access to capital in the private markets. NVCA data suggest that companies take an average of eight years before exploring an IPO vs. three-four years about a decade ago.”
When do you see the window for European tech IPOs opening up again?
Baetens: “The fundamentals to come to the market are still ok. There is enough investor capital depth in Europe, but at the end of the year, it’s not uncommon some more agitation pops up, making the markets a bit more vulnerable.”
Kostyál: “The IPO pipeline remains strong and with some macro conditions falling in place and volatility calming down, there are many indications for a stronger tech IPO market going forward. Overall one should distinguish that the public market is a great platform to support growth companies to take next steps in terms of access to capital, visibility, and credibility!”
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