VC-backed IPOs on the Rise | Aranca Article & Publication

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s VC-backed IPOs on the Rise November 2014

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Venture Capital-backed IPOs make a come back

Prior to 2008, capital markets were considered among the most popular routes for venture capital (VC) exits. However, the globalfinancial crisis limited the available exit opportunities, leaving venture capital funds to rely on options such as stake sale to other VC/private equity firms or management buyouts. In the recent times, strong equity market performance has encouraged VC-backedcompanies to return to equity markets through initial public offerings (IPO) as a viable exit alternative. In 2Q 2014, while the VC-backedM&A market deals declined 12.6% Q-o-Q to 97 VC-backed M&A deals from 111 deals in the previous quarter, VC-backed IPOs activityincreased 45% Q-o-Q during the same period and raised USD4.9bn in capital. The improved activity can also be attributed to theimproved global economy, with rebound in consumer confidence, increase in business spending and supportive actions by centralbanks.

In 2013, VC-backed IPO activity exhibited the strongest growth since 2007. Almost 128 companies went publ ic during the year raising atotal of USD23.0bn, with the US and China continuing to dominate as the most active markets. This momentum continued in 2014, with152 VC-backed IPOs raising nearly USD30.6bn as of July 2014.

Global VC-backed IPOs**

Source: Thomson One; Note **Excludes figures from East Asia; *Includes figures till July 2014

US Among the most active IPO markets in the VC space

The US has been one of the most active markets for VC-backed IPOs owing to stability in equity markets and sustained investorconfidence. Equity markets in the US are witnessing strong momentum, with the S&P 500 index rising about 22% and FTSE Nasdaq500 index advancing about 31% Y-o-Y as at the end of June 2014. Also, the Jumpstart Our Business Startups (JOBS) Act, signed intoa law in April 2012, made it easier for companies to access the capital markets. The measures under the act, including confidentialfilings and reduced disclosure provisions, have eased the process of going public for US companies.

Performance of US Capital Markets

Source: Bloomberg, Note: Rebased to 100

27 27

119101

88

128152

0

50

100

150

200

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 2013 2014 YTD*

Amount Raised (USD bn) No. of VC-backed IPOs (RHS)

80

100

120

140

160

180

Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14S&P 500 FTSE Nasdaq 500

+63%

+49%


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The first half of 2014 witnessed PE- and VC-backed IPOs contributing 64% to the total US IPOs by volume and 81% by capital raised.Total VC-backed IPOs stood at 38 in 1Q 2014, followed by 25 in 2Q 2014. The top three VC-backed IPOs in the US during 2Q 2014were from the technology and healthcare sectors.

US VC-backed IPOs:

Source: Dow Jones Venture Source US Capital report 2Q 2014

The outlook for the rest of 2014 continues to remain positive, backed by low volatility in equity markets, strong investor confidence, andthe success of Alibabas IPO listing. This is expected to pave the way for a buoyed equity market and improved investor sentimentwhich is likely to result in higher IPO activity in 4Q 2014.

China Witnessing high demand for VC-backed IPOs

In late 2012, IPO activity in China came to a stop, with the China Securities Regulatory Commission halting the approval of IPOs; thisresulted in a sharp slowdown in the venture capital activity in the country. However, China lifted the ban after 12 months in late 2013,thus paving the way for several companies to go public in 2014. The first quarter of 2014 saw 27 VC-backed companies going public,marking the highest number in a quarter since 3Q 2011; a total capital of USD2.1bn was raised through IPOs during the quarter, up26% Q-o-Q.

In 2Q 2014, although only 11 VC-backed companies went public in China, lower than in 1Q 2014, total capital raised was considerablyhigher by 34% at USD2.8bn. Moreover, when compared on Y-o-Y basis, number of listings was significantly better than only twocompleted in 2Q 2013. The largest IPO in 2Q 2014 was by JD.com Inc., which raised USD1.3bn, representing 48% of the total amountraised through VC-backed IPOs in China during the quarter. With the China Securities Regulatory Commission looking at easingrestrictions on IPOs in the future, the country is making way for more offerings in 2014 and beyond.

China VC-backed IPOs:

Source: Dow Jones Venture Source China Capital report 2Q 2014

1411 10

20

12 10 8 9

2025

20

38

25

0

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20

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40

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8

10

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14


2429

15 17 1512

40 2 1

12

27

11

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10

20

30

40

0

1

2

3

4

5

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14



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European markets are opening up for VC-backed IPOs

In Europe, the IPO markets continued to recover since the global 2008-09 economic crisis. The European Central Bank (ECB) hashelped support the European markets by increasing liquidity through interest rate cuts and additional bond purchase programs. After aprolonged slowdown, capital markets across Europe are showing some signs of recovery, with the DAX, FTSE, and CACgaining 37%, 16%, and 21%, respectively, over June 2011 14 following a sustained decline in previous years.

Performance of European Capital Markets

Source: Thomson One

Europe witnessed eight IPOs in 1Q 2014, which was the highest number of VC-backed IPOs in a quarter since 2Q 2010. The secondquarter recorded strong growth with 19 IPOs, reflecting the highest number of VC-backed IPOs in a quarter since 4Q 2006.The firstseven months of 2014 witnessed a significant jump in amount raised from VC-backed IPOs, the highest in the past six years USD3.7bn through 31 IPOs. Some of the notable offerings during the year include UK-based Just Eat PLC raising USD597.4mn in April2014 and Circassia Pharmaceuticals PLC raising about USD333.5mn in March 2014.

Europe VC-backed IPOs

Source: Thomson One

Conclusion

The improving global economic outlook and positive regulatory developments in US and China to create a more conducive capitalmarkets are among the major factors contributing to the growth of VC-backed companies taking IPO exit route. Also, the positivemomentum in the equity markets post the 2008 financial crisis has encouraged the VC-backed companies to tap IPO as a viable exitoption against acquisitions and buyout routes. Amid these contributing factors, capital markets globally are likely to witness a robustpipeline of IPOs by VC-backed companies.

60

80

100

120

140

Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14

FTSE100 DAX30 CAC40

7

3 2

63 2

5

14 3

9 8

19

0

5

10

15

20

0

1

2

3

4

5

6

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14



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VC-backed IPOs on the Rise | Aranca Article & Publication

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