Olivier Wolf, TMT Transaction Advisory Services leader at EY; and Eric Sanschagrin, head of TMT Transaction Advisory EMEIA, discusses how the tech sector is fuelling IPOs in the UK.
Technology vendors accounted for roughly one third of the £2.8bn in total proceeds raised in UK IPOs during the second quarter of 2018, according to EY’s latest IPO Eye. Although far from the purple patch of 2014-15, which saw a number of tech-focused businesses come to market in rapid succession, tech listings are now fuelling the London IPO market.
That’s quite a notable performance given the broader political and macro-economic outlook, as well as the tendency for IPO volumes to seesaw in tandem with investor confidence and market sentiment. At the same time, global M&A volumes in the technology sector have been running at an average of more than $350bn over the 2015-2018 period, an increase of more than 100% over the 2011-2014 period. We estimate that software accounted for more than 50% of technology sector deal volumes over recent years, while hardware-centric sub-sectors such as semiconductors and communication systems have become increasingly marginalised. Based on data compiled by EY, the average multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) paid by acquirers for software vendors has been creeping up steadily; where the norm over a decade ago may have been to value software vendors at high single digit multiples of EBITDA, the last twelve months have witnessed many transactions at EBITDA multiples in excess of 20. ...