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Key Findings

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Investors

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Purpose

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Policy

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Appendix

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European Exit Landscape

Many will be surprised to know that Europe has produced more tech IPOs than the US for six consecutive years, including more tech IPOs in the first nine months of 2019.

Number of tech IPOs by region

Legend

  • Europe
  • United States
Note:
2019 based on data up to September 2019.

But you have to dig beneath the headline numbers to get the full story. First of all, looking at the magnitude of the tech IPOs, as measured by market cap ($B) at IPO, it is clear that the US had a dominant year in 2019. The combined value of the Top 10 tech IPOs in the US in the first nine months of the year equated to a total market cap of $153B versus $22B for the ten largest European tech IPOs. Uber's market cap at IPO alone eclipsed the combined market cap of Europe's top 10 tech IPOs in 2019.

Largest tech IPOs by market cap at IPO ($M) in Europe and United States, 2019

Largest tech IPOs by market cap at IPO ($M) in Europe and United States, 2019

Top 10 largest tech IPOs by proceeds raised ($M) at IPO in Europe and US, 2019

Top 10 largest tech IPOs by proceeds raised ($M) at IPO in Europe and US, 2019

Looking past the opening day headlines, it's notable that Europe's 2019 crop of IPOs, large and small, have delivered returns for their investors which exceed their US contemporaries.

2019 has been a highly eventful year in global tech listings, with companies like Uber and Lyft in the US, and Nexi and Trainline here in Europe. While numbers of European listings have been a little subdued compared with 2018, Europe has stretched its lead over the US in the number of tech listings for the 6th year running. Looking past the opening day headlines, it's notable that Europe's 2019 crop of IPOs, large and small, have delivered returns for their investors which exceed their US contemporaries.

James Clark

London Stock Exchange

Head of Tech and Lifesciences, Primary Markets

The numbers of sponsor-backed tech IPOs per region are at similar levels in Europe and the US. These relate to IPOs where typically financial investors, whether VCs or PE funds, play a 'sponsoring' role in bringing these companies to the public market. The mix of VC versus PE sponsors between the US and Europe in 2019 has been very different. In the US, VCs have been the dominant sponsor of tech IPOs, while in Europe they've been led by PE funds. This marks a shift versus 2018, when Europe's largest tech public listings were 'sponsored' by VCs, including Spotify, Adyen and Farfetch.

Number of sponsor-backed tech IPOs by region

Legend

  • Europe
  • United States
Note:
2019 based on data up to September 2019.

There is a divergence between European and US public markets in terms of the ability of tech companies of different scale (by market cap) to access them. While the number of US tech IPOs with a market cap of less than $1B has been in persistent decline for several years, Europe has seen the opposite trend as a result of the greater diversity in types of companies that can access the region's public markets.

Number of tech IPOs with less than $1B market cap at IPO by year and region

Legend

  • Europe
  • United States
Note:
2019 based on data up to September 2019.

At the other end of the market cap scale, while European has consistently delivered multiple billion-dollar tech IPOs each year, the US has delivered a greater volume of larger tech IPOs of $1B+ market cap at issuance. Since 2015, there have 2.8x as many $1B+ tech IPOs from the US versus Europe.

Number of tech IPOs with $1B+ market cap at IPO per year and region

Legend

  • Europe
  • United States
Note:
2019 annualised based on data to September 2019.

Of course, the 2.8x difference should be put in additional context. It’s only one consideration to account for the difference between Europe and the US, but it’s relevant to note the gap in terms of relative levels of capital investment into tech in Europe and the US. Since 2015, the US saw a 4.0x greater level of venture capital investment versus Europe, a number that puts into additional context the 2.8x multiple on $1B+ tech IPOs.

Number of tech IPOs with market cap at IPO of $1B+ and total capital invested ($B) by region, 2015-2019

Number of tech IPOs with market cap at IPO of $1B+ and total capital invested ($B) by region, 2015-2019
Note:
Capital invested based on Dealroom data and number of tech IPOs based on LSE data. 2019 is based on data up to September 2019.

The long-standing dominance of the US in the global tech industry and the sustained decades-long gaps in relative capital investment in tech in different regions are best captured by the difference in total market cap of public tech companies by region. The total aggregate value of public US tech companies (around $5.9T) is 5.5x greater than Europe (around $1T). This too, however, is in part a reflection of the fact that relative levels of venture capital investment in the US and Europe have been on very different scales. More than $800B of venture capital has been invested in the US since 2000 versus between $150-200B in Europe.

Total market cap ($B) of public tech companies by region in 2019

Note:
Data as of 21 October 2019.

Though Europe has yet to produce a company that comes close to rival the value creation of trillion-dollar market cap companies to rival Microsoft or Apple, it's often forgotten that Europe has produced more than one $100B tech company. SAP, Europe's largest public tech company by market cap, has now grown to be valued at more than $150B. If SAP has done it, why can't others?

Top 10 largest tech companies by market cap ($B) in Europe, US and China in 2019

Note:
Based up data up to 21 October 2019.

Whilst the US had a bumper year in terms of the scale of its tech IPOs in 2019, those companies have not gained value as a cohort since listing, as the public markets have been impacted by increased volatility. The weighted aftermarket performance of the 2019 class of tech IPOs from the US was down 6% at the end of October 2019; Europe's 2019 vintage was up 18% at the end of the same period. Of course, it's still much too early to judge the performance of these companies.

Weighted aftermarket performance of tech IPOs by vintage year (%)

Legend

  • Europe
  • United States
Note:
Aftermarket performance is weighted by market cap at IPO. 2019 based on data to 21 October 2019.

There are a lot of things happening right now in tech that are raising a lot of questions. Looking at what happened to WeWork most recently, we're seeing investors shy away from companies that might not be clearly profitable from the get-go. I think there will be some kind of movement when it comes to funding for startups. Startups will need to prove themselves, and their business models even more. It's going to be trickier; if you rely on funding, a far more uncertain future is ahead. Combined with the delay of Brexit in the UK, we're entering an extended state of uncertainty for businesses.

Maria Raga

Depop

CEO

Besides simply looking at the scale of public tech companies, there are a number of other cultural differences between European and US public markets. One is a greater level of openness to existing investors selling down their position at IPO for liquidity. As a result, there is a materially higher share of secondary share sales on European than on US markets.

Average share of primary versus secondary shares sold at IPO by region

Legend

  • Europe
  • United States
Note:
2019 based on data up to September 2019.

There is a strong pool of sophisticated European public market investors that have built large portfolios of holdings in public European tech companies. Norway's giant sovereign wealth fund, Norges Bank Investment Management, is the single largest European investor in European public tech companies, as measured by the size of its portfolio at the end of September 2019.

Top 10 European investors in European tech companies

2018 was a record year for European VC-backed exits, including the IPOs of Spotify, Adyen and Farfetch, amongst other highlights. By comparison, 2019 has been a very quiet year in terms of large-scale VC-backed exits, with the largest exit coming in at just over $850M.

Top 10 largest VC-backed exits by value at exit in 2019

Note:
EUR to USD conversion taken by date of exit from Bloomberg; Graze value at exit based on rumours.

The slow year in terms of VC-backed exits is reflected in the count of total M&A transactions.

VC-backed M&A exit count by deal size

Legend

  • <$100M
  • $100M-$250M
  • $250M-$500M
  • >$500M
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2019 based on data up to September 2019.

Looking beyond just venture-backed European tech M&A activity, total deal value hit $88B in the first nine months of 2019 and is on track to surpass 2018's total for the year of nearly $100B. Non-VC-backed companies have been the key driver of that figure, accounting for almost 80% of total deal value up until the end of September 2019.

European M&A exit value ($B) per year by VC-backed or not

Legend

  • VC-backed exit value
  • Non-VC backed exit value
Note:
2019 is based on data up to September 2019.

European tech M&A is dominated by exits to European buyers, which accounted for 60% of exit by deal count in 2019. One in four M&A transactions in 2019 was a US buyer, a record high over the past five years.

Tech M&A buyers


60%
of European tech companies are sold to European buyers.

Share of M&A exits by buyer region by year

Legend

  • Europe
  • United States and Canada
  • Asia
  • Other (incl. unknown buyer country)
Note:
VC-backed and non-VC backed deals included. All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2019 based on data to September 2019.

Despite the slow exit year in 2019, Europe has a large pipeline of potential exit candidates with close to $103B of unrealised $1B+ candidates for exits across a number of industries.

Realised and unrealised $1B+ exits by industry vertical

Legend

  • Value of realised $1B+ exits
  • Value of unrealised $1B+ startups
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. Data from 2013 to 2019; 2019 based on data up to September 2019.

Entrepreneurs believe they can build extraordinary success stories in Europe, because either they know of others, or perhaps, increasingly, they know someone directly who has been a part of one of those stories. That's hugely powerful.

I tend to think that a high-performing ecosystem is made up of three main things: talent, capital and a 'belief system'. I think Europe has more and more phenomenal talent, including people who move from the US to come to Europe for any number of reasons - for their studies, for lifestyle or world experience, to move back to where their families are, etc. I don't have to tell you there's more capital than ever before, and more high-quality capital, I should add. But it's really the 'belief system' that I think has had the most marked change. Entrepreneurs believe they can build extraordinary success stories in Europe, because either they know of others, or perhaps, increasingly, they know someone directly who has been a part of one of those stories. That's hugely powerful.

Leila Rastegar Zegna

Kindred Capital

Founding General Partner

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