With rumors continuing to circulate about an acquisition of Qualcomm by Broadcom for more than $100bn in what would be the largest chip deal, I thought it was time to reflect on tech exits so far this year and gauge the general health of the market for both tech IPOs and tech M&A.
IPOs remain sluggish, recovery in 2018?
It seems like forever since we have had a strong IPO market for technology companies. Activity remains relatively muted with only 7 transactions taking place in 3Q17 down from 11 the same time last year. With only 21 tech IPOs in North America for the entire year through the end of the third quarter, it’s no wonder that there’s a few bankers on Wall Street and Bay Street that are worried.
Source: Capital IQ
For me, its interesting to have not seen more IPOs this year. As you can see from the table below, investors have done particularly well from the tech IPOs that have come to market – with the average performance since IPO topping 36% - much better than the broader markets have performed this year. As such, investors should be hungry for a lot more IPOs. But its not really been a demand issue, it’s much more of a supply issue. Given the availability of late-stage VC capital, private tech companies seem to be delaying going public longer than ever before.
Maybe this will all change in 2018 with rumors that the likes of Uber and potentially Airbnb could go public – both of which would dwarf the total proceeds raised by the IPO market in the last few years.
M&A is down but expect a rebound
While M&A activity has seen a big drop off in terms of the dollar proceeds because of the absence of the blockbuster deals like we saw in 2016, the number of deals that are taking place has been pretty strong and is on track to meet or beat last year’s total. And as discussed earlier, if the Qualcomm/Broadcom deal does get announced, the deal on its own would be more than all the dollar volume seen for the rest of 2017.
Source: Capital IQ
With the level of M&A activity that we are seeing at Sampford Advisors, we think we are going to be in for a very strong end to the year and equally strong beginning to 2018. This is in large part due to valuations continuing to be very healthy, very constructive debt financing markets and large cash balances on corporate balance sheets. As such, we would expect the M&A markets to begin to show some strong growth over the coming quarters.
Ed Bryant is President and CEO of Sampford Advisors, an M&A advisory firm for Canadian technology companies. Ed has over 20 years of experience, including over 17 years in investment banking with Deutsche Bank, Morgan Stanley, and Sampford in Hong Kong, Singapore, New York, and now Ottawa. In that time, he has raised in excess of $20 billion in equity and debt capital and completed over $10 billion in M&A transactions.
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