Gulf money stalling tech IPOs

Cash infusions from companies such as SoftBank and Middle East funds are thought to be contributing to a technology startup IPO drought. (Reuters)
Updated 20 October 2017
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Gulf money stalling tech IPOs

LAGUNA BEACH, California: Big cash infusions for startups from an ever-expanding group of investors, led by SoftBank Group and Middle East sovereign wealth funds, have extinguished hopes that the technology IPO market would bounce back this year.
These deep-pocketed financiers, which have traditionally invested in the public markets but are seeking better returns from private tech companies, have enabled startups to raise more money, stay private longer and spurn the regulatory hassles of an IPO even as they become larger than many public companies.
At The Wall Street Journal D.Live conference this week in Southern California, a number of venture capitalists, entrepreneurs, IPO experts and dealmakers spoke with Reuters about the surprisingly low number of IPOs and pointed to investors such as SoftBank for changing the business of startup financing.
“It’s not surprising if these companies get 10 term sheets,” said Nicole Quinn, an investing partner with Lightspeed Venture Partners, referring to formal offers of investment.
The result is a protracted IPO slump that has contributed to a 50 percent drop in the number of US public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 — the year public market investors, including mutual funds, ramped up investment in private tech companies.
There are some signs of a more active fall for IPOs. Tech companies Switch, MongoDB and Roku have gone public in the past few weeks, with debuts from ForeScout Technologies and Zscaler ahead.
Yet many investors are bracing for a market tumble after a sustained rally, raising questions about IPO opportunities for 2018.
Just 12 venture capital-backed tech companies went public in the US in the first three quarters this year, compared to 27 for the same time period in 2014, according to IPO investment adviser Renaissance Capital.
The drought continues even though both the Dow Jones Industrial Average and Nasdaq Composite are up more than 26 percent in the last year and market volatility is low, normally ideal conditions for an IPO.
Wall Street stock indexes have posted a string of record highs in recent weeks, and the Dow closed above 23,000 for the first time on Wednesday.
But Barry Diller, a longtime dealmaker and chairman of Expedia, said the huge funding rounds had eliminated the traditional reason for an IPO.
“There is no reason to be public unless you need capital, and almost all these companies do not need capital,” Diller said.
Increasingly, the big checks are coming from SoftBank, which in May closed a $93 billion investment fund.
So far this year, it has announced at least 14 investments in technology companies globally, including a $500 million deal with fintech company Social Finance and a $3 billion investment in shared workspace company WeWork, both private and already worth billions of dollars.
SoftBank is in the next week expected to finalize a highly anticipated deal with Uber Technologies in which it, along with other investors, would purchase as much as $10 billion in Uber shares, most of them from employees and existing investors in a so-called secondary offering.
“This is the third liquidity option,” said Larry Albukerk, who runs secondary market firm EB Exchange and spoke to Reuters by phone. “It used to be IPO or acquisition.”
SoftBank’s deals are causing venture capitalists to “prepare for more M&A exits,” and fewer IPOs over the long term, said Jenny Lee, managing partner at GGV Capital.
Meanwhile, Nasdaq’s private market business, set up in 2014, facilitated more than $1 billion in secondary market transactions last year, according to Bruce Aust, vice chairman of Nasdaq.
Secondary transactions allow employees and investors to get some cash by selling to other private investors, removing a significant pressure to go public.
The flood of private capital, and the lofty valuations that have come with it, have, paradoxically, created another reason for avoiding an IPO, said Chris Clapp, a managing director with consulting group MorganFranklin.
“Many times with my clients I don’t think they would achieve the same valuation in the public markets,” Clapp said in a phone interview.
Meal delivery company Blue Apron Holdings took a 27 percent haircut when it went public in June and software company Cloudera lost 53 percent of its valuation in its April IPO.
Snap, the owner of messaging app Snapchat, is down more than 10 percent from its IPO price in March.
— Reuters


Wealthy Gulf individuals feel more confident about regional prospects

Updated 25 April 2018
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Wealthy Gulf individuals feel more confident about regional prospects

  • “Factors like the region’s stability, attractive investment opportunities and low-tax environment are seen as the main drivers behind the growing confidence in the region’s economy.”
  • Among the most optimistic were respondents in the UAE, with 57 percent of those surveyed saying they thought the overall outlook was improving.

DUBAI: Survey finds growing optimism on region’s economies, but Saudi investors remain wary.

Wealthy individuals in the Gulf are more optimistic over the future of the region and the global economy compared with last year, and are increasing likely to invest in their own countries and other emerging markets in Asia than in western economies. These are among the main findings of an annual survey by Dubai-based Emirates Investment Bank (EIB), released on Tuesday, of the sentiment among high net worth individuals (HNWIs) in the region. 

After two years of falling confidence, some 60 percent of regional HNWIs now believe things will improve or stay the same. Fewer are pessimistic about both regional and global economic prospects than last year, while nearly 80 percent of respondents said they would prefer to invest in Gulf assets, rather than looking abroad.

The recovering oil price was a big reason for the increasing feel-good factor in the Gulf, according to Khalid Sifri, EIB’s chief executive officer, who added: “Factors like the region’s stability, attractive investment opportunities and low-tax environment are seen as the main drivers behind the growing confidence in the region’s economy.”

After falling below $30 per barrel in early 2016, oil has subsequently recovered to a three-and-a-half-year high, breaching the $75 a barrel mark yesterday for the first time since November 2014.

However, the overall optimism of the survey masks some concerns among regional HNWIs; in Saudi Arabia, 48 percent of respondents said that they saw the regional economic situation improving or staying the same, against 52 percent who felt it was likely to worsen in 2018.The survey was conducted last November and December, when investor sentiment in the Kingdom was affected by the high-profile anti-corruption campaign undertaken against some prominent business people accused of financial wrong-doing. “It may have been affected by that. We shall see what the situation is at the end of this year,” Sifri said. 

Respondents from Kuwait were even more pessimistic. None of the respondents from the country felt that things were going to improve on the investment front this year, while 54 percent said they would worsen. Among the most optimistic were respondents in the UAE, with 57 percent of those surveyed saying they thought the overall outlook was improving. On the long-term global outlook, a total of 78 percent of those surveyed across the region were optimistic about prospects over the next five years, with most citing positive economic and political stability as the reason, along with a smaller number who said oil price stabilization would benefit the world economy. The oil price recovery was the biggest reason for regional optimism. 

The geopolitics of the region was claimed as a big factor in deciding investment decisions, but Saudis were less concerned than others. Only 29 percent in the Kingdom said they were influenced by geo-political events, compared with 83 percent in Qatar and 85 percent in the UAE. 

Oil prices, economic reforms and the introduction of VAT were also factors influencing investment, as was the election of Donald Trump as president of the USA. There has been a big shift in global investor orientation outside the GCC. Nearly half of regional wealthy investors (47 percent) are now looking to Asia, 38 percent to the wider Middle East and North Africa, some 34 percent to Europe and only 17 percent to North America. The survey was conducted among 100 HNWIs with $2 million or more in investable assets.