- Market volatility at the end of 2018 put a pause on the IPO
pipeline, but tech investment bankers expect the deals to flow at
the turn of the calendar year.
- With a long list of marquee names like Uber and Lyft, IPOs in
2019 could set new records in terms of valuation and exits for
Silicon Valley venture capitalists.
- But VCs aren’t the only ones set to win. Bankers expect to
see private equity firms try their hands at tapping the public
markets, as well.
- Meanwhile, the largest tech companies in China are also
taking a hard look at US exchanges for IPOs of their own.
Tech IPOs could break new records in 2019 as US bankers prepare
for some of the largest private companies in the world to make
their big stock market debuts.
Despite a blockbuster lineup of Silicon Valley success stories,
like Uber (reportedly
weighing a $120 billion valuation) and Airbnb (last
valued at $31 billion), there’s one big question on
everyone’s minds: How will stock market volatility impact IPOs?
The stock market sell off in October was
the worst Wall Street has seen in seven years, and some
IPO-ready companies even put on the breaks to avoid going public
in a down market, bankers said.
But technology bankers are an optimistic bunch. While bankers
said they are keeping a watchful eye, most still expect there to
be around 50 US tech IPOs in 2019. That’s just shy of 2018’s
total, which data provider Dealogic pegged at 53 in mid-December,
with a total of $19.8 billion in deal value.
“I don’t think we’re seeing people change their plans in light of
the volatility at the moment,” said Greg Chamberlain, managing
director and head of US Technology, Media and Telecoms Equity
Capital Markets at J.P. Morgan. “As we get into 2019, people will
think more about the precise timing to go public.”
When exactly these companies decide to go public is anyone’s
guess — an IPO-ready team only has to decide about two weeks
ahead of the public listing. Though for some banks, the second
quarter may be a hectic one.
“There’s no doubt we’re going to have a very busy March, April
and May, and that’s going to set the stage for the remainder of
the year,” said Chris Cormier, managing director and head of tech
equity capital markets at UBS.
But with many companies taking advantage of the opportunity to
file confidentially, it’s hard to know exactly which companies
are near the finish line.
“At this point, anyone who can
file confidentially will file confidentially,” said lawyer Anna
T. Pinedo, a partner Mayer Brown’s corporate and securities
the market cooperates, there will probably be a big surge in the
number of public filings in early January.”
It’s the year of the unicorns
Some of the most valuable private companies in Silicon Valley
have plans to go public in 2019. Both
Uber filed confidentially in the first week of December, and
tapped Goldman Sachs to run its own IPO. Unicorns Airbnb and
Pinterest are all also rumored to be in the pipeline.
“We had a long period of companies staying private longer,
and the birth of a generation of unicorns, and that has
accelerated this year when people thought it might be leveling
off,” said Nick Giovanni, co-head of Global Technology Investment
Banking at Goldman Sachs. “What it means is we’re set for a tech
IPO super-cycle, where there are more companies going public and
more large IPOs happening than ever before.”
Even Bumble, the dating app where women have to make the
first move, is weighing its options. And others, like
venture-backed vegetarian food company Beyond Meat, has publicly
filed — though there’s debate about whether a fake meat company
should be lumped with software startups.
“Many of these companies could have executed an IPO a year or two
earlier. When they do come to list they will be well
capitalized,” said J.P. Morgan’s Chamberlain.
But insiders also expect a healthy pipeline of smaller software
startups with deal sizes around the $200 million mark — companies
which didn’t quite make it public in the big enterprise tech
spree of 2018, when bigger names like Dropbox and DocuSign
entered the public markets.
The cybersecurity company CrowdStrike, a competitor to
Blackberry’s $1.4 billion
acquiree Cylance, reportedly hired Goldman Sachs
for its IPO, while others like the $1.25 billion experience
management company Medaillia have
made early moves, like hiring a new chief financial officer.
“There is still a lot of backlog in software,” said Neil Kell,
Chairman and Head of U.S. Technology, Media and
Telecommunications Equity Capital Markets at Bank of America.
“If you take size out of the equation and just look at the number
of transactions, software businesses are going to grab the
majority of the deal flow,” he said.
Private equity is ready to experiment with
While venture capital firms are set to see huge returns on
decade-old investments, private equity firms also have their eye
on Wall Street as an exit vehicle.
Over the next year or two, bankers expect IPOs from
technology-focused firms like Vista Equity Partners and Thoma
Bravo — investors which have traditionally preferred to exit
“There’s probably 10 to 20 private-equity-backed software
companies that have to come out over the next 24 months,” said
Private equity IPOs for tech companies are not entirely
unprecedented, though investors have only recently shifted their
attention toward growing companies rather than cutting
SolarWinds, which was bought by Silver Lake Management,
HarbourVest Partners and Thoma Bravo in 2010, went public in
October. And in a sign of what’s to come,
hired Goldman Sachs to lead an upcoming IPO for its secure
access software Ping Identity, which it acquired for a reported
$600 million in 2016.
‘Majority’ of Chinese companies looking at US
Another trend insiders expect to see in 2019 is a continued flood
of highly-valued Chinese companies hitting the US public markets.
From the e-commerce app Pinduoduo to the peer-to-peer lender X
Financial, Chinese companies
outpaced US companies in US-exchange IPOs throughout 2018.
Tencent Music, China’s largest music streaming company, made its
stock market debut on December 12 at a $21 billion valuation,
and if it performs well, its success could propel other companies
China is home to a handful of unicorn tech companies including
$75 billion Bytedance, $56 billion Didi Chuxing, and $18.5
billion Lu.com, according
to CB Insights. While some will choose to list in Hong Kong,
New York is on everyone’s radar, bankers said.
Companies listed on exchanges in China and Hong Kong face
stricter regulations than they do in the US, which many founders
are drawn to for benefits like different voting rights for
different share classes and better investor liquidity.
“If you talk to any of the big Chinese growth companies, the
majority want to list in the US,” said Cormier.
While international politics have taken their toll on
cross-boarder M&A, the impact on IPO has been less severe and
Chinese companies have been wooed to the US markets by access to
capital and the allure of getting publicity on a global stage,
“There’s all of the political implications of trade negotiations
and trade conversations and how that ebbs and flow,” said Kell.
“But the US is arguably one of the largest, if not the largest
top source of public and private capital for companies