Tech IPOs in vogue, and set to continue

Tech IPOs in vogue, and set to continue

Software and information security start-ups dominate B2B IPOs

Credit: Dreamstime

Initial public offering (IPO) fever looks set to continue within the market, as vendors continue to seek outside investment.

According to 451 Research findings, more vendors have gone public than any other year in the recent decade, for the most part successfully.

“2018’s enterprise tech IPO party may be far from over,” wrote the analyst firm, in a briefing note to media.

Furthermore, data suggests that “nearly 40 other B2B tech companies” are waiting in the wings for an IPO.

“Application software and security companies, propelled by robust business spending, dominate both launched and would-be IPO lists,” research stated. “Those companies that have already made their debuts have mostly been successful.

“Every enterprise start-up except one that has gone public this year has priced either in-range or above and then traded higher in the aftermarket.”

451 Research said “growth-hungry investors” have rewarded the newly public companies with valuations that are 2-4x richer than prevailing trading multiples for the overall tech industry.

Specifically, standout debuts that have garnered double-digit valuations during the first half of 2018 include Zscaler, Dropbox and Zuora.

“The prominence of application software and security vendors in the IPO ranks is undoubtedly related to robust business spending plans in those areas,” research stated.

According to 451 Research, 17 per cent of buyers are planning to increase spending on information security (infosec) products, with 12 per cent forecasting bigger budgets for enterprise applications.

“That demand is showing up in the results of the start-ups that are going public,” findings stated.

“Broadly, the software and security vendors that have debuted so far in 2018 are increasing sales 30-60 per cent year-over-year.”

Credit: 451 Research

Consequently, 451 Research expects the “unprecedented flow” of tech IPOs to continue throughout the remainder of 2018, “as long as Wall Street keeps paying up for new names”.

Of the 39 candidates 451 Research tracks in its 'shadow IPO pipeline,' three-quarters of them - including names such as Anaplan, CrowdStrike and Turbonomic - are in the application and security segments that have so far dominated actual initial public offerings.

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