Generally, the IPO and M&A markets are natural partners, but there are times when they can appear completely out of step with each other. In the US Technology sector we seem to be in one such phase now.
Tech IPOs are currently at a record low number - there has only been one venture backed IPO in the US this year so far, yet, as highlighted below, US Technology Trade acquirers have never been more active. We have definitely seen evidence of this in US interest in our portfolio companies. At some point I would expect the two cycles to get back in step again, with IPO markets regaining their appetite for venture-backed tech. The catalyst will be if VCs can convince sceptical investors the highly-valued businesses they bring to market are a higher quality threshold than recent vintages.
if you look at US buyer activity across the UK TMT market as a whole for the year to September, volumes are currently up around 32% on the same period for 2015 and this is something we are finding is being borne out in many of our current TMT processes. Whilst UK PE appetite remains exceptionally strong, US strategic appetite has notably increased – in July for example we advised construction software business Union Square on its sale to US buyer Deltek. So whether it’s thanks to a bit of help from currency swing or just a general strategic move towards increased external investment it’s hard to say, but for now at least it looks like US buyers are here to stay.