Two of the largest US software listings in history will lead the biggest week for initial public offerings since Uber’s flotation last year, as companies cash in on the market’s hunger for technology stocks.
A dozen IPOs are set to raise $6.8bn, with half of the proceeds coming from three California tech listings, according to Refinitiv, a data provider. Snowflake, the cloud software business, will raise $2.2bn, and Unity, a video game software company, will raise $950m. Sumo Logic, another data software platform, will raise $281m.
The projected totals are based on the shares’ pricing at the midpoint of the ranges marketed to investors.
Snowflake’s IPO will be the largest ever US software offering, eclipsing the 2007 listing of VMware and underlining the rising fortunes of enterprise software services, according to data provided by Renaissance Capital, a fund manager of IPO exchange traded funds. Unity would be the third-largest.
“Many companies are fast-forwarding their IPO plans given the strength of the market and relative valuations,” said Jim Cooney, head of equity capital markets for the Americas at Bank of America. “Historical valuations are out of the window, primarily driven by enormous innovation but also financial factors, including a zero interest rate environment and quantitative easing from the Fed.”
Software companies in the S&P 500 index of US blue-chips trade at 34 times estimated 2020 earnings, compared with 26 times for the broader index. They have outperformed the benchmark by 27 per cent this year and are among the big winners from the rise of remote working.
The stock market rally that has added nearly 50 per cent since the lows in March has lured a run of listings including the year’s two biggest deals in June, when Royalty Pharma raised $2.5bn and Warner Music attracted $2.2bn. On a year-to-date basis companies have raised more this year than any other since 2014, according to Refinitiv.
The money raised in the coming week will be the most since Uber’s $8.1bn listing pushed the amount raised in the first week of May last year to $9.6bn. JFrog, an Israeli software development company, and Vitru, a Brazilian education company, will also list this week.
Snowflake has latched on to the rise of cloud computing by allowing its users to manipulate data between multiple remote storage providers. At the midpoint of its price range, the company would command a market capitalisation of $22.3bn — more than 80 times the company’s most recent fiscal year revenues.
On Tuesday, the listing received a boost when Salesforce and Warren Buffett’s Berkshire Hathaway agreed to purchase an additional $250m of shares each alongside the IPO.
Unity, whose technology underpins a large number of mobile video games such as Pokémon Go, is attempting an auction-like IPO process designed to give the company more power over how its shares are priced. At the high point of its price range, the company would have a market capitalisation of $11.1bn.
Both Snowflake and Unity reported rising net losses in their most recent full-year financial results.
Matthew Kennedy, senior IPO market strategist at Renaissance, said the newest listings were “trying to take advantage of the sky-high tech multiples they can get in public markets as well as timing this before the election in November”, an event that can increase market volatility.