The topic of initial public offerings (IPOs) has come up in several of our notes recently (for instance, here and here). IPOs not only reflect the general economic activity (and venture capital and private equity exit activity in particular), but also provide an important benchmark about the values the market assigns to particular subsectors and sectors.

The recent Global Technology IPO Review Q1 2015 (a full text of which is available here) by PricewaterhouseCoopers, a consultancy, provides some interesting data about the activity levels in technology IPOs globally this year. It concludes that with very respectable 23 IPOs raising USD 6.1 billion (EUR 5.6 billion) globally, the Q1 2015 results have nevertheless fallen short of the spectacular Q1 2014 when USD 6.8 billion were raised in 26 IPOs.

Europe, which had not been a stable performer in this area in 2014, has got off to a very strong start of the year with five IPOs. The largest IPO globally in terms of proceeds raised is actually Auto Trader Group Plc, a UK company, with USD 2.4 billion. Meanwhile, two more European IPOs have been ranked among the top 10 globally measured by the proceeds raised – the Swedish Dustin Group AB with USD 236 million and the Danish NNIT A/S with USD 215 million. Measured by the number of IPOs and by the proceeds Europe has actually outperformed the US with only USD 1.4 billion raised in four IPOs during the quarter.

With a reported average revenues of USD 1,109 million, EBITDA of USD 172 million and net income of USD 83 million the companies belonging to the subsector named “Computers, Storage & Peripherals” have simply dwarfed all the others where the average revenues have not exceeded USD 423 million and EBITDA over the last 12 months have been in the range of USD 23 to 36 million.

It is interesting that size does not really matter as far as the valuations are concerned. Thus, the highest revenue multiple of 10.6x has been reported by the companies in “Software” subsector, followed closely by “Semiconductors” with 8.4x. Meanwhile, the size leaders from the “Computers, Storage & Peripherals” subsector have been valued at only 3.5x revenues. Similar results, with just minor alterations in ranking, have been reported using the Enterprise Value/EBITDA metrics, with “Semiconductors” leading by reporting an average multiple of 56.4x, followed closely by “Software” with 54.5x, and leaving “Computers, Storage & Peripherals” with their still very impressive 22.2x far, far behind.

Compared to the companies in many more traditional industries, the above valuation levels, of course, look astonishingly high. It remains to be seen whether the investor super-high confidence in their future growth prospects and profitability was justified or not.


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