Europe’s biggest issue is a scarcity of tech companies, producing fewer unicorns and start-ups
NEW YORK • Tech stocks around the world are pushing all-time highs, spurring headline-grabbing listings by the dozen, yet in Europe the biggest news in the sector is a company looking to leave public markets.
Start-up factory Rocket Internet SE has brought at least nine IPOs to market over the past five years, but said on Tuesday that it would be “better positioned as a company not listed on a stock exchange”. Its rationale for the move is all too familiar: Access to private funding is so easy that there is little need to maintain a listing.
The decision adds to the long-running woes of the technology industry in Europe’s capital markets. Investors have lamented the lack of European champions to rival US heavyweights like Apple Inc and Google’s parent Alphabet Inc, and there’s no sign the region is about to produce one any time soon.
Europe’s biggest issue is a scarcity of tech companies, producing fewer unicorns and start-ups. Even for those that do start in the region, the US often becomes their biggest market, according to Aukse Jurkute, a managing director at Bank of America Corp leading tech origination in its equity capital markets franchise for Europe, the Middle East and Africa.
Only 16 tech companies have floated in Europe this year, the lowest in more than a decade, according to data compiled by Bloomberg. The sales raised US$650 million (RM2.7 billion), only a sliver of the US$9.2 billion raised in the US and the more than US$23 billion in Asia, the data shows.
Moreover, private investors flush with cash have bought out many IPO candidates, pushing up valuations for unlisted companies in doing so. Meanwhile, European public markets have baulked at the high prices. The valuation gap is even more pronounced when compared to the US and Asia, making a listing this side of the pond even less attractive for tech companies.
“If Tesla Inc were listed in Europe, it would be at half or even 20% of its current value,” said Shaunak Mazumder, a global equities fund manager at Legal & General Investment Management. US investors understand the power of disruption and have “seen this movie play out before”, whereas European funds are more focused on profit at the expense of innovation, he said.
There are a larger number of dedicated tech investors in the US that understand niche tech businesses better, alongside a wider group of peers and comparable stocks in that market, “but it does not mean you cannot get good valuations in Europe”, Jurkute said.
One area of the tech universe that has flourished in Europe is the crossroads with financial services. Some of the continent’s largest IPOs in 2019 came from payments processors Nexi SpA and Network International Holdings. On Tuesday, fintech scale-up Unifiedpost Group SA said it plans to list on Euronext Brussels and expects to raise as much as €212 million (RM1.04 billion).
Still, European exchanges generally lack listing rules that give founders more voting rights and greater protections, which have lured some tech companies overseas. Swedish streaming service Spotify Technology SA and UK-based retail technology group Farfetch Ltd have opted for US IPOs in recent years.
The trend has not gone unnoticed. Euro-pean regulators are attempting to boost tech listings and prop up start-ups amid the coronavirus pandemic. France set up a €4 billion bailout fund for small homegrown tech companies and Germany is looking at a survival package for the sector.
There are signs local exchanges could become more accommodating. Online beauty retailer The Hut Group Ltd is listing in London with a structure that will give its co-founder and CEO Matthew Moulding a so-called golden or founder share with the power to veto any hostile takeover attempt for three years.
“Quite a few sizeable” tech listings are expected to come to market in the region within the next nine to 12 months, according to Jurkute. “Anything from software, security, e-commerce, wider fintech and a number of other businesses are accelerating their IPO timelines because they are benefitting from the Covid-19,” he said.
European tech companies that are said to be lining up IPOs in the coming months include Polish e-commerce giant Allegro and British cyber-security firm Darktrace. Swedish payment provider Klarna Bank AB has also flagged it is preparing to go public in the next year or so. — Bloomberg