Global trend & subsector distribution
Sequentially, the tech IPO market took a nosedive from 22 IPOs worth US$10.8 billion in Q4 2015 to 10 IPOs worth US$769 million in Q1 2016–a 93% decline in proceeds and a 55% decline in number of IPOs. Total Q1 proceeds for the technology sector were weaker than any of the previous five quarters. The second worst quarter in the previous five was Q3 2015. It had one more IPO–11 total–than Q1 2016, but the proceeds were 533% greater at US$4.1 billion.
In line with previous quarters, the Internet Software & Services subsector led Q1 2016 with three IPOs and US$280 million in proceeds. The Semiconductors and Software subsectors had two IPOs each with proceeds of US$125 million and US$103 million, respectively. Communications Equipment had the second highest proceeds at US$132 million – from one IPO. IT Consulting & Services and Electronics had one IPO each with proceeds of US$66 million and US$64 million, respectively.
Except Software and Communications Equipment, all subsectors posted year-over-year declines in numbers of IPOs, with Internet Software & Services seeing the greatest drop at a 63% decline.
The analysis of subsector distribution of IPOs reflects stalled activities in the US and UK as well as relatively less action in China. The overall weak performance of the subsectors is a result of the challenges discussed earlier in the report, primarily the global macro-economic situation, uncertainty over monetary policy in the US and Europe, and fears of Britain exit from the EU.
Geographic IPO trends
As noted, the geographic distribution of tech IPO activity shifted from its traditional markets in the US, UK and Germany to Asia and smaller countries in Europe. China led with three IPOs, raising US$267 million. The biggest IPO–Tongyu Communication Inc., with proceeds of US$132.1 million -- was listed on Shenzhen Stock Exchange. India had two IPOs, listed on the Bombay Stock Exchange. Japan issued two IPOs and Malta, Sweden, and Ireland had one IPO each.
The US had no tech IPOs. Lower oil prices, US monetary policies, negative Chinese macro-economic numbers and other factors are impacting the market. Some US companies that were headed toward the IPO market have taken a wait-and-see policy due to lower valuations in recent months. But going slow might not remain an option for some technology companies that need cash because they are also seeing reduced VC and PE funding.
The UK, which had many tech IPOs in the last few quarters, also drew a blank. Volume and value of IPOs on the London Stock Exchange (LSE) is expected to continue to fall as doubts rise over interest rates in the UK. Elections in the US and France and the possibility of the UK leaving the EU, are also dampening the market.
China's Review 1Q 2016
Asia's performance in this quarter, especially China's, was much better compared to rest of the world, evidence that investor risk and appetite vary across geographies. Chinese tech IPO activity declined in Q1. It led the quarter with three IPOs and US$267 million in proceeds, but that was down from six IPOs and US$551 million in proceeds in Q4 2015, or down 50% in number and 52% in proceeds. Year over year, the proceeds declined by 75%, from US$1.1 billion and the number of IPOs dropped by 63% from eight.