London prepares for return of tech IPOs

A three-year drought in UK technology stock market flotations is poised to come to an end this year, as a number of companies prepare to go public.

Promethean, the Blackburn-based provider of electronic whiteboards and interactive learning systems for schools, looks to be the first to list, with an announcement expected next month.

Promethean, which is expected to be worth £400m ($650m) to £500m, has appointed Gleacher Shacklock as a financial adviser and Goldman Sachs and JPMorgan as global co-ordinators.

Sophos, the Oxford-based internet security group, is also planning to list. Sophos, which is backed by TA Associates, the private equity firm, tried to list in 2007 but aborted plans after its valuation fell short of expectations.

Another TA-backed company, AVG Technologies, which provides antivirus software, is also thought to be considering a listing, particularly if the Sophos float is successful.

Other companies known to be in talks with bankers over possible float plans include Acision, the former Logica mobile phone messaging business that was sold to private investors Atlantic Bridge and Access Industries for £265m in 2007.

Betfair, the London-based internet betting company, Codemasters, the Leamington Spa-based computer games company, and 2e2, the IT services group owned by Duke Street Capital, are all also considering listings.

Icera, the Bristol-based semiconductor company, is aiming for an initial public offering valued at $600m to $1bn (£370m-£615m), although this may not be for at least another year.

These listings will end an unprecedented period of inactivity in the London technology listings pipeline. There have been no technology IPOs on the London Stock Exchange since 2007, when Telecity floated with a valuation of £436m.

During 2000, at the height of the dotcom boom, there were 75 technology company floats in London, with a combined value of nearly $3.5bn, according to figures from Dealogic, the market analysis company. Even after the dotcom bubble burst, in 2001 there were 15 floats, and six in 2002.

While market listings have been at at standstill, there has been a steady stream of companies leaving the Stock Exchange over the past three years, including Civica, NSB Retail and Netstore.

While bankers have welcomed the reopening of the technology IPO market, they remain cautious over whether all these proposed listings will be successful.

The value of UK tech stocks has risen strongly over the past nine months, up about 70 per cent, compared with an overall market rise of 50 per cent. This should mean there is demand for new technology issues.

However, Paul Lewington, technology banker at Piper Jaffray, says only the largest companies will succeed in getting investors’ attention.

“I think size requirements have risen considerably. Institutions see less risk and more effective deployment in large new issues of £100m or more,” he said.

“You have a capital market in the UK that is still nervous. Fund managers have a small allocation for technology,” said Simon Russell, technology banker at Thomas Weisel Partners. “The talk from the sell side is simply not matched by appetite from the buy side.”

Investors will be watching the technology companies in the US that are planning to float in the first quarter. If these go well, they may be more willing to invest.

“You only need a couple of bad performers and the window will close again. Investors will no longer want to listen to technology IPO roadshow presentations,” said Jean Tardy-Joubert, partner at Qatalyst, the boutique technology advisory group.

Bankers also point out that many of the UK companies planning to float are older businesses that do not offer the same exponential growth forecasts that have been seen in previous cycles. This may also dull investors’ appetite for the stocks.

Many of the names on the list have been trying to float since 2003.

“IPOs in 2009 represented only 10 per cent of venture-backed exits and M&A was 90 per cent,” said Mr Tardy-Joubert.

AVG, for example, has planned to float twice before, while Codemasters was initially planning a listing in 2008, on a mooted valuation of £200m.

“They are good businesses, with good cash flows, but the equity story is not one of exponential growth, like we saw in the last cycle,” said Paul Guely, managing partner at Arma Partner, the specialist technology advisory firm.

“To float you need scale and and a good growth story. Many companies are talking about floating this year but I think you will be lucky if 20 per cent of them actually do,” Mr Guely said.

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