According to a recent report by Santa Monica, Cali.-based market research firm IBISWorld, a number of fast-growing tech companies have been engaging in an increasing number of IPOs over the past five years. “Successful IPOs in the tech sector keep relative industries growing and incentivizes new start-ups with innovative technology and solutions to push for growth,” says IBISWorld industry analyst Andrew Krabeepetcharat. “IPOs often indicate that an industry is in the growth phase of its life cycle; new technology and a fast-growing number of enterprises are characteristic of an industry that is set to expand in the future.”
Many tech companies are issuing IPOs to raise capital, monetize early investments and to become publicly traded, according to IBISWorld. These moves are then allowing companies to access more potential investors for reinvestment in working capital, future growth or settlement of debt.
Cloud computing, a buzz word in the tech scene for at least the past three years, is one of the driving technologies behind many growing tech industries and, thus, the IPOs that have characterized them as of late. “New companies that are pursuing fast-growing product segments in technology are engaging in IPOs to grow their companies and expand their client bases,” says Krabeepetcharat, “especially in the data processing and hosting industries, where companies like IBM and Hewlett-Packard have both heavily integrated cloud computing into the data processing and hosting services they already offer.”
IBISWorld estimates that the data processing and hosting industry in particular has grown at an annualized rate of 2.4 percent to $81.3 billion in the past five years, including a 5.9 percent jump in 2012 alone. The year's high growth, which has helped spur recent IPOs, is due in part to a strengthening economy and in greater part to an increase in the use of industry products. In 2012, Synacor Inc. issued an IPO to raise capital for its cloud-based technology that enables cable, satellite, telecom and consumer electronics industries to deliver digital content to its consumers.
According to IBISWorld's recent report, growing specialization has been spurring IPOs in the software publishing industry in the past five years as companies look for eager investors to fund their expansion. San Mateo, Cali.-based Guidewire Software Inc., for example, which develops back-end software for property and casualty insurance carriers, raised $100 million in an IPO and began to be publicly traded in January 2012.
“Advancements in semiconductor chips and wireless networks have allowed software publishers to explore new capabilities and uses, especially in computers and smartphones, opening up new software markets,” explains Krabeepetcharat. As such, IBISWorld estimates that revenue for the software publishing industry has grown at an annualized 4.5 percent per year on average over the past five years, including 5.3 percent in 2012.
As companies in various tech industries, particularly those in the fast-growing cloud computing and software spaces, seek to fund expansion and rapid innovation in products and services, the volume of IPOs is projected to increase. At the same time, IBISWorld anticipates that revenue growth in these industries will also attract new entrants and, thus, boost IPO activity.