2017 Brings New Tech
Looking back on 2016, there’s been an odd dearth of initial public offerings from the technology sector. We were four months into the year before the first tech IPO hit the market and just 20 technology companies went public this year. That’s well down from 29 last year and way off the 46 in 2014, making it the least active year for tech IPOs since 2009.
You can blame a lot things for the lack of new tech offerings; shocks like the dive in tech stocks early in the year or the Brexit, or the massive uncertainty the US election has caused. Despite a high-profile meeting with tech executives, President-Elect Trump has caused a fair bit of consternation among tech companies. From calling for a boycott on Apple, accusing Amazon’s CEO of evading taxes or wanting to restrict visas for needed tech workers from overseas, he has made a lot of technology executives nervous. The bankers who back IPOs are also a conservative bunch, known for encouraging companies that want to go public to wait for the stars to perfectly align.
Just because there haven’t been many IPOs doesn’t mean the sector’s been devoid of action, though. In the first nine months of 2016 technology mergers and acquisitions totaled $318 billion, outpacing the $250 billion over the same period last year. Flush with cash even as low interest rates have made financing deals easier, the big tech companies have been buying up a lot of the potential IPO candidates. Verizon was buying Yahoo (though now there are worries that the telecom might back out after Yahoo’s latest hacking revelation), Salesforce went after Twitter and Microsoft bought LinkedIn. Even old school companies like Walmart and Unilever went after tech companies to boost their own digital businesses.
We might get another crack at buying into some IPOs in 2017. While Donald Trump and his policy agenda is still very much a wild card, the data analytics outfit Palantir, advertising tech provider AppNexus and the now ubiquitous Snapchat are all expected to launch billion-dollar IPOs next year. In addition to that billion-dollar trio, Morgan Stanley’s top tech analyst predicts there will probably be at least 30 or 40 tech IPOs next year. Bankers at Union Square Advisors reckon the number could be higher, counting 90 tech companies that have either filed IPO paperwork or stated a desire to go public.
I don’t think we should be looking for 2017 to break any records for tech IPOs, but there’s a lot of pent-up demand. Major institutional investors are reportedly clamoring for more IPOs, especially since they’ve done so well on the couple of dozen that did come out this year. More than two-thirds of 2016’s tech IPOs are trading above their closing price on their opening day, a solid performance that’s made big buyers a lot of money. With the Fed signaling that its likely to pick up the pace of interest rate increases in 2017, raising cash through IPOs will become more and more attractive compared to buyout deals which usually involve debt.
As we ring in 2017, we’ll be keeping an eye out for some new tech companies looking for some cheer.