Europe’s technology IPOs putting American peers in the shade
US has produced almost three times more billion-dollar firms but that’s also made them expensive
For investors craving that old Silicon Valley standby, harvesting fast money from an initial public offering in technology, the place to look right now is Europe.
With companies from Paris to London and Berlin raising record money, newly listed stocks have rallied 20 per cent in the month following their IPO, eclipsing the 6.7 per cent gain for those in the US, based on weighted averages. A big reason: initial valuations are almost half those of their American counterparts.
Incentives from governments and companies have led to a surge in start-ups in Europe this year. Firms such as French security-software provider Oberthur Technologies and UK money-transfer site Transfer-Wise Ltd have attracted a combined $9.4 billion (Dh34.52 billion) in 2015, and now Europe counts more professional mobile application developers than the US, according to venturecapital investor Atomico.
“The opportunities are abundant for investors and entrepreneurs,” said Mark Tluszcz, chief executive officer of Mangrove Capital Partners, one of the first backers of Skype. “US companies are getting increasingly high valuations, but in the public market, where there’s more scrutiny, investors will say: ‘Hang on, that price doesn’t really reflect the business you have.’ Europe hasn’t had that phenomenon.”
A total of 11 European tech companies have announced and priced IPOs this year, raising a combined $1.8 billion, data compiled by Bloomberg show. That compares with 13 across the Atlantic that sold $4.3 billion of shares. In a recent example, CLX Communications AB, a Swedish mobile communications provider, jumped 49 per cent in the month following its initial sale, compared with a 3.7 per cent gain for cloud-services provider Pure Storage Inc in the US. The phenomenon is concentrated in technology. In other industries, first-month gains have been about the same.
Since 2013, the hype around technology start-ups in America has produced almost three times more so-called unicorns, or billion-dollar companies, than Europe. But that’s also made them expensive.
Average valuation
Those that went public this year had an average valuation of about 3.9 times estimates sales, according to nine of them for which the data were available. That compares with a multiple of 2.6 for the three with available figures in Europe.
The reasons for the run-up in privately held US tech valuations are well known: a scramble by hedge funds and mutual funds to pump money in hot start-ups before they’re public, owners waiting around for a takeover, and the advent of private share markets where insiders can sell stock. In Europe, early investors tend to have longer time horizons, according to Fernando Chueca of Carlyle Group LP.
For investors daring enough, opportunities are looming. Oberthur, backed by Advent International Corp, is looking to list shares in what it says will be this year’s biggest European technology IPO.
Sigfox, which makes lowcost wireless networks, is seeking at least $200 million in funding and is considering going public. German start-ups Delivery Hero Holding GmbH and SoundCloud are also looking into initial share sales.
“When I started Mangrove, it was like a desert in Europe,” Tluszcz said. “Fifteen years later, we have success stories in each country and capital is flowing. There has never been a better time for European tech.”