The technology sector has been in the spotlight over the past year, having seen record M&A activity, as well as several IPOs. In its State of the Deal: M&A Trends 2019 report, Deloitte noted that technology acquisitions were the driving…
The technology sector has been in the spotlight over the past year, having seen record M&A activity, as well as several IPOs. In its State of the Deal: M&A Trends 2019 report, Deloitte noted that technology acquisitions were the driving force behind M&A activity in the previous year. While legacy corporates as well as investors turn to inorganic growth to compete in a technology-driven future, software companies are readily exploring exit options at higher valuations.
The year 2019 is expected to record the highest ever exit value created through the initial public offerings of VC-backed technology companies in the United States, CB Insights has reported. Renaissance Capital has estimated that IPOs could raise USD 100 billion this year, exceeding record levels of capital raised through 1999 and 2000. The first quarter of 2019 has seen 199 IPOs globally with technology, healthcare and industrials having received the largest share, according to Ernst & Young. Tech unicorns and their IPOs have made headlines, as several companies that had spent close to a decade maturing and raising capital, have all gone public. Dropbox, Lyft, Uber and Pinterest are all prominent names that have gone on to complete IPOs with high valuations. It is interesting to note that that a significant number of these unicorns remained private for a long time before going public – close to a decade in Uber’s case.
IPOs however have not been the norm for the industry. In recent years, companies have relied more on private financing than on public markets. According to EY’s 2019 M&A Sector Outlook, the number of listed companies in the United States has decreased by half, while PE-backed companies have doubled. The reason for this is the availability of dry powder in the market and investors’ willingness to hold investments for longer. For instance, private equity hold periods have averaged 5.5 years between 2016 and 2019, compared to 4.5 years, which was the average hold period just a decade ago. Correspondingly, Aurigin (formerly BankerBay) has also recorded a heightened interest from private equity firms that are seeking add-on acquisitions, strengthening existing investments to hold them for longer.
The private market has seen an uptick in exits as M&A activity continues to increase despite geopolitical uncertainty and market volatility. According to a recent BDO Technology Outlook Survey, only 25 percent of technology executives in the United States expect tech companies to remain private this year, while the rest anticipate that companies will look to exit either through M&A or IPOs.
The public market has recently seen some prominent tech exits including those of unicorns such as Uber and Lyft. Parallelly, private market activity on Aurigin has surged in the past months. The platform has seen a growth of 18 percent in technology deals in the past 6 months compared to the same time period last year. Also in line with public market activity, there has been a 59 percent surge in internet and SaaS companies looking to exit in the past 6 months, compared to the previous year. Technology companies on Aurigin that are looking to exit specialise in collaboration software, workflow management, home automation software, RPA, and voice recognition. It is possible that this shift is signaling the end of the investment cycle for technology companies that have remained private for a long period.
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