Gulf money stalling tech IPOs
Gulf money stalling tech IPOs
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.
Saudi Aramco aims to buy controlling stake in SABIC: Sources
- Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals
- The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year
DUBAI: Saudi Aramco aims to buy a controlling stake in petrochemical maker SABIC, possibly taking the entire 70 percent stake owned by Saudi Arabia’s sovereign wealth fund, two sources familiar with the matter told Reuters.
Late last week Aramco confirmed a Reuters report that it was working on a possible purchase of a “strategic stake” in Saudi Basic Industries Corp. (SABIC) from the Public Investment Fund, the kingdom’s top sovereign wealth fund.
Aramco’s initial thinking is to buy the full stake owned by the Public Investment Fund (PIF), but if that fails to materialize Aramco could end up with a stake in SABIC of more than 50 percent, making it a majority owner, the sources said.
No final decision has been made on the size of the stake as the discussions are still at a very early stage, they added.
Aramco declined to comment. The PIF did not respond to a Reuters request for comment.
Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals ($103 billion).
The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year, the state oil giant’s chief executive, Amin Nasser, said in a TV interview on Friday.
Aramco plans to boost investments in refining and petrochemicals to secure new markets and sees growth in chemicals as central to its downstream strategy to cut the risk of an oil demand slowdown.
Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from around 5 million bpd now, and double its petrochemicals production by 2030.
Aramco, the world’s largest oil producer, pumps around 10 million bpd of crude oil.