The market for tech IPOs may have cooled down globally in the last eighteen months, but tech bankers at Goldman Sachs say they expect to see IPOs make a comeback in the US in the second half of 2023, and in Europe in 2024.
“2022 and the first half of 2023 have seen a period of huge adjustments, but now those adjustments have largely played their way through, as inflation and interest rates have begun to taper in Europe, excluding potentially the UK,” said Clif Marriott, partner and co-head of European tech investment banking at Goldman Sachs, at a tech event put on by the firm in Berlin.
People can see the end in sight of the rising interest rate cycle and with that comes more stability in the capital markets
“People can see the end in sight of the rising interest rate cycle and with that comes more stability in the capital markets,” he added.
His team works with private tech companies looking to go public, and has helped with the IPOs of Wise, AUTO1, Delivery Hero and ABOUT YOU, among others.
But when the IPO window does open, Marriott didn't see tech companies in Europe banging down the doors to list straight away. Companies are seeking to stay private for longer — and grow bigger in the meantime, he said, adding that Spotify didn’t go public until it was a $20bn company and Facebook’s peak market capitalisation at the time of its IPO was $104bn.
“The public capital markets generally want larger companies that have bigger floats and more liquidity at the time of IPO,” Marriott said. “The scale (of a company) is one of the most important factors for whether a large global fund will invest in a company at the time they go public.”
CEOs of private companies themselves are “not clamouring to become public companies” because doing so fundamentally changes the way a founder has to operate a business, he added.
“Most public companies feel they have to operate and report to the market on a quarter-by-quarter basis, manage their profitability and their business in a straight line manner. Most private companies at the later stage don’t necessarily want to do that and therefore stay private longer.”
The opportunity in Europe
Europe may not have yet spawned a Google or Facebook, but Goldman bankers said they were optimistic about the region’s tech ecosystem.
“15-20 years ago, the common idea was that European engineers would go to Silicon Valley to work for a US company, learn how to operate, and start a company in the US,” Marriott said. “Now, we have 240 unicorns in Europe, repeat founders investing in the ecosystem and a huge amount of venture capital, especially in the pre-unicorn stage.”
The important thing for Europe is that these companies are starting here, growing here and employing people here.
And while European founders and investors today often critique the continent’s inability to provide the infrastructure and growth capital needed to grow big, Marriott said there was no need to panic: “The important thing for Europe is that these companies are starting here, growing here and employing people here.”
Many companies have also already successfully listed on European stock exchanges and have attracted international investors, such as Wise and JustEat in the UK, and Delivery Hero, Zalando and AUTO1 in Germany, demonstrating that strong IPOs in Europe are possible, said Hannes Gsell, managing director in Goldman's German tech team.
Both Gsell and Marriott weren't worried about an exodus of European companies listing in the US — where the regulatory environment is said to be smoother — in the future.
“I don't think a US listing will be relevant to every European company in terms of going public. It may be relevant to some companies, but I think that will still be the exception to the rule rather than the rule,” Marriott said.
