SEG Research into the SaaS & Software IPO Market Indicates a Strong Pipeline of Candidates Remain
According to SEG’s SaaS & Software IPO Snapshot, the pipeline of candidates remains chock full of unicorns and as such could point to a record number of IPOs either this year or next.
In fact, the pipeline has grown so deep that SEG analysts identified close to 40 B2B software unicorns (i.e. startups valued at $1 billion or more) which could make their way in the public markets over the next 12 months. The list includes Dropbox, which raised $612 million on its debut in March, Zoom, Eventbrite, and DocuSign among others (see page 11 of the report for more).
In addition to the deep pipeline of tech companies awaiting their IPO, research noted a growing number of companies which already made their debut have been acquired. Notably, private private equity has been particularly active over the past two years – accounting for half of the acquisitions.
Another trend in tech IPOs has been the continuous march of SaaS companies listing. Since 2013, these companies have accounted for 74% of the offerings in the space. While this mirrors the business model conversion happening throughout the industry, it also points to rapid maturation of many of these companies which pioneered SaaS.
However, this doesn’t mean that traditional software business models have disappeared. In fact, Square had one of the most successful IPOs of 2015, and the November 2017 IPO of SailPoint Technologies pushed the company’s market capitalization to more than $1 billion and the company is now trading at close to 2x its IPO price. While these companies are not the only examples of success, they point to the lasting power of this business model.
The continued jockeying between SaaS and non-SaaS company IPOs is expected to continue in 2018, and relatively steady stream of IPOs over the past few years have not dampened investor demand. In fact, the average first-day returns for B2B Software and SaaS IPOs in 2017 was 22.5% (median of 18.9%) with the biggest first-day winners being MuleSoft’s 46% first-day return, which raised $206 million, and Altair’s 40.6% first-day return, which raised $145 million (see page 10 for more).
As such, the key takeaways from SEG’s research on SaaS and software IPOs are that the pipeline for potential deals is deep and that many of these companies should seek to debut soon. In addition, private equity firms are becoming more active acquirers and this could make for some megadeals over the remainder of 2018 – especially as unicorns weigh their options for growth capital.
