Sale of the century?

Sale of the century?

“THE amounts of oil are incredible, and I have to rub my eyes frequently and say like the farmer: ‘There ain’t no such beast.’” So wrote an American oilman in the Persian Gulf a few years after the discovery in 1938 of a gusher of oil from Saudi Arabia’s Well Number Seven, 4,727 feet (1,440 metres) below the desert floor.

You could say the same today about Saudi Aramco, the state-owned firm that for decades has had exclusive control of Saudi Arabia’s oil and is the world’s biggest, most coveted and secretive oil company. On January 4th the kingdom’s deputy crown prince, Muhammad bin Salman, told The Economist that Saudi Arabia was considering the possibility of floating shares in the company, adding that personally he was “enthusiastic” about the idea.

It was a stunning revelation. Officials say options under preliminary consideration range from listing some of Aramco’s petrochemical and other “downstream” firms, to selling shares in the parent company, which includes the core business of producing crude. The staggered nationalisation of the Arabian American Oil Company (Aramco), made up of four big American firms, in the 1970s was emblematic of a wave of “resource nationalism” that has helped define the industry (see chart 1).


Aramco is worth, officials say, “trillions of dollars”, making it easily the world’s biggest company. It says it has hydrocarbon reserves of 261 billion barrels, more than ten times those of ExxonMobil, the largest private oil firm, which is worth $323 billion. It pumps more oil than the whole of America, about 10.2m barrels a day (b/d), giving it unparalleled sway over prices. If just a sliver of its shares were placed on the Saudi stock exchange, which currently has a total market value of about $400 billion, they could greatly increase its size.

Prince Muhammad says a listing would not only help the stockmarket, which opened to foreigners last year. It would also make Aramco more transparent and “counter corruption, if any”. A final decision has yet to be taken. Yet the prince has held two recent meetings with senior Saudi officials to discuss a possible Aramco listing and diplomats say investors are being sounded out. The talk is of at first floating only a small portion of the company in Riyadh, perhaps 5%. In time that could rise—though not by enough to jeopardise the kingdom’s control of decision-making.

The aim would be to foster greater shareholder involvement in Saudi Arabia; a senior official said there was no intention of surrendering control of Aramco or its oil resources to foreign firms. But it is part of a frenzy of reforms proposed by the prince that his government is rushing to keep pace with. “Everything is on the table. We are willing to consider options we were not willing to get our heads around in the past,” an official says.


For many investors, a listing of Aramco, however partial, would be a prize even at today’s low oil prices. Its “upstream” business is mouth-watering. Rystad Energy, a Norwegian consultancy, says no other country except Kuwait can produce oil at a lower break even cost (see chart 2).

By the standards of national oil monopolies, analysts say that Aramco is well run. In the 1940s and 1950s, when the American consortium recruited young Saudis, it was an “unlikely union of Bedouin Arabs and Texas oil men, a traditional Islamic autocracy allied with modern American capitalism”, writes Daniel Yergin in “The Prize”. Under American ownership, it built towns with schools, wiped out malaria and cholera, and helped farmers become entrepreneurs, officials recall, explaining why it was popular with Saudis.

It was a different story in Iran and elsewhere, where citizens grew sick of the colonial-era concessions taken by British and French firms, and a wave of nationalisation began. The Saudis, having declared their first 25% stake in Aramco in 1973 “indissoluble, like a Catholic marriage”, were unable to resist the tide. Full nationalisation of Aramco came in 1980. But an American business ethic survived. Just over a decade ago Matthew Simmons, an American banker, argued that Saudi wells were past their prime and that production would soon peak. Yet Aramco has increased output by more than 1m b/d in the past five years, reaching record highs. “They’ve proven their resilience,” says Chris DeLucia of IHS, a consultancy.

Questions surround the company, though. Mr DeLucia says 87% of its output is oil; it needs to develop more gas to satisfy the country’s needs for cleaner, cheaper power. Some argue that its reserves, which have barely budged since the late 1980s, are overstated. Internal documents about them are “phenomenally closely guarded secrets” says a local observer.

The company does not report its revenues. Its fleet of eight jets, including four Boeing 737s, and a string of football stadiums suggest that it is not run on purely commercial lines. It is the government’s project manager of choice even for non-oil developments, and runs a hospital system for 360,000 people. A listing would require it to become more transparent.

But even with greater disclosure, minority shareholders may play second fiddle. The company is integral to the social fabric of Saudi Arabia and the survival of the ruling Al Saud dynasty, providing up to nine-tenths of government revenues. Cuts in its output have been a foreign-policy lever through which OPEC, the producers’ cartel, has often sought to rescue oil prices.

Investors in Russia’s Gazprom, another national champion, have watched in frustration as the company has been used as an arm of the Russian foreign ministry. Elsewhere, selling stakes in national oil companies has had mixed results.

Prince Muhammad’s desire for reform fits a pattern that some consider reckless. Saudi Arabia has recently forced OPEC to maintain production despite oil falling from a peak of $120 a barrel to below $35. Its decision on January 3rd to suspend diplomatic relations with Iran, a fellow OPEC member, makes it harder for both to agree on production cuts, though Saudi officials are in any case adamant that they have no intention of rescuing prices.

Others believe Saudi Arabia’s strategy makes sense. They think it wants to protect its share of the global oil market by driving high-cost producers to the wall at a time when unconventional forms of oil, such as American shale, have had gushing success.

Another threat is alternative forms of energy, such as wind and solar, which may well challenge fossil fuels. Selling shares in Saudi Aramco could thus be intended to cash in before the “decarbonisation” of the economy starts to gain credibility. It would also fit with a trend that has started to transform the oil industry for the first time in half a century—denationalisation.

Paul Stevens of Chatham House, a British think-tank, says a cadre of well-educated technocrats from oil-producing nations are wondering whether their national oil companies are “ripping us off”, through corruption or inefficiency. Brazil’s corruption-plagued Petrobras proves that public markets are no guarantee of probity. But as in Mexico, which is opening up its oil industry for the first time since 1938, many want to impose market-based checks and balances, so that no company can operate as a state within a state. If that happens to Saudi Aramco, the biggest of them all, it will have global repercussions.


Sale of the century?

36 tech companies that could go public in 2016

36 tech companies that could go public in 2016

This year a bunch of tech companies have gone public, including Apigee, Atlassian, Box, Etsy, Fitbit, GoDaddy, Match Group, Shopify, and Square. But 2016 could be even more exciting.

The 2016 Tech IPO Pipeline from private-company research startup CB Insights has many staggering figures. Never before in the annual report have there been so many companies that have raised rounds of $100 million or more. The average total amount of funding they’ve raised is higher than ever, at $182 million. The number of companies in the pipeline with new valuations of at least $1 billion has never been higher, at 39. And the pipeline now contains 80 private companies based in the U.S. that have raised money at a valuation of $1 billion or more. (Last year, there were 40 such companies.)

Today, venture-backed CB Insights is highlighting the 36 unicorns with the greatest “momentum,” using a metric that takes into account social media messages, news articles, web traffic, business deals, and other information. Some of these companies might not seem like IPO material now, and some obvious ones are missing (Cloudera and Pinterest, for example), but who knows what will happen next year? This list isn’t a bad place to start if you want to know which companies could end up going public in 2016.

Without further ado, here’s a list of the 36 fast-moving unicorns, with some commentary appended:

1. Actifio. This company makes data-center storage backup software that runs on commodity servers. Backup isn’t the sexiest industry, but it’s important, because big companies like to be sure that they won’t lose their data in the event of a disaster. Actifio announced a $100 million funding round in March.

2. Airbnb. This home rental startup is one of the biggest unicorns around, and its ascent has brought about industry consolidation and controversy. Earlier this month, Airbnb submitted a filing for a $1.5 billion funding round.

3. AppDynamics. This application performance management company saw competitor New Relic go public late last year. AppDynamics raised $158 million earlier this month.

4. Apttus. This Salesforce-backed quote-to-cash software company announced a $108 million funding round in September.

5. Automattic. The company behind the WordPress content management software last raised funding in mid-2014 and more recently open sourced

6. Avant. The online lender formerly known as AvantCredit said in September that it had raised $325 million, at a valuation reportedly just shy of $2 billion.


7. BuzzFeed. Yes, that BuzzFeed. The meme-friendly media outlet boasts 200 million unique monthly visitors, with NBCUniversal investing $200 million in the company in August.

8. CloudFlare. This company offers a content distribution network with security features that are popular with developers. In September, CloudFlare announced a $110 million funding round with Baidu, Google Capital, Microsoft, and Qualcomm all participating. When I spoke with CloudFlare cofounder and chief executive Matthew Prince at the time, he said an IPO wouldn’t happen in 2015 or even 2016 — the earliest would be 2017. “If it were 2018, I wouldn’t be surprised,” he said. “If it were 2019, I wouldn’t be surprised. If it were 2020, I would be surprised.”

9. Coupa. The company with cloud-based expense, procurement, budgeting, and invoicing software announced an $80 million round of funding in June, with T. Rowe Price participating.

10. Datto. The disaster recovery hardware company announced a $75 million round of funding last month.

11. Docker. Arguably the hottest company in enterprise software, Docker has kicked off a great deal of interest in Linux containers for packaging up source code that can be run on servers. The company is still in the process of building a major revenue-generating machine, having launched the Docker Trusted Registry and Universal Control Plane products in 2015. Docker announced a $95 million round at a reported $1 billion valuation in April. “I think that we have the opportunity to build a truly world-class company that changes the way we build, ship, and run applications and that goes for a big IPO and beyond, and that’s how we’re organizing the company,” Docker chief executive Ben Golub told VentureBeat in an interview in September 2014. “We clearly wouldn’t have taken a big round at a big valuation if we were planning on selling in the near future.”


12. DocuSign. The e-signature company announced a $233 million round at a reported $3 billion valuation. In October, Reuters reported that chief executive Keith Krach had told employees he was looking for his replacement.

13. Domo. The cloud-based business intelligence software maker faces competition from many companies, including Salesforce and Amazon Web Services. Domo finally came out of stealth mode after five years, in April. At that time it announced a $200 million funding round at a $2 billion valuation.

14. Fanatics. The sports merchandise retailer hired Moxie Capital cofounder Lauren Cooks Levitan earlier this year to be its new CFO. In August, Fortune reported that the company had taken a $300 million investment from private equity firm Silver Lake.

15. GitHub. It feels like yesterday that the hosted source-code-repository software company took on a $100 million Series A funding round. But GitHub announced a bigger, but less star-studded, $250 million round at a reported $2 billion valuation this past July. GitHub now has more than 10 million users.


16. Houzz. The home design software company carried a $2.3 billion valuation as of June 2014. In October, Houzz announced a $165 million funding round.

17. Illumio. The security software startup announced a $100 million funding round in April, with BlackRock Funds participating.

18. InsideSales. The predictive sales software company disclosed a $60 million round in March, with Salesforce Ventures leading the round. Microsoft has also backed the company.

19. Medallia. The customer feedback software company announced a $150 million funding round in July.

20. MuleSoft. The application integration software company unveiled a $128 million funding round in May, with Salesforce Ventures leading the round and ServiceNow participating in the deal.

21. Nutanix. This company’s hardware brings together servers and storage hardware that are traditionally sold separately, allowing for cost-cutting. Nutanix has been ready to go public for a while now, having raised a $140 million round in 2014 and partnered with Dell and, more recently, Lenovo.

22. Okta. The identity management software company raised a $75 million funding round earlier this year. Okta CEO Todd McKinnon told the San Francisco Business Times in September to expect an IPO within 12-18 months.

23. Palantir. The secretive big data software company with a reputation for working with government agencies disclosed earlier this month $129 million in funding that was tacked onto an earlier $555 million round, according to the Wall Street Journal.

24. Qualtrics. The Utah-based survey software company announced a $150 million round in September 2014.

25. Simplivity. The converged infrastructure hardware company that competes with the likes of Nutanix announced a $175 million round in March


26. Slack. The hot team-communication software company is building out a third-party application ecosystem and it’s even giving out venture capital money with the help of some of its own investors. But Slack was valued at $2.8 billion in a $160 million funding round in April, and now Slack boasts 2 million daily active users.

27. Snapchat. This messaging app with more than 100 million daily active users is one of the most exciting consumer-facing startups around. And Snapchat’s moves into advertising and third-party publisher content could give the company staying power. Snapchat said in May that it had raised $537.6 million since February. But the $16 billion valuation reported back in May is said to have decreased 25 percent thanks to a markdown from Fidelity.

28. SoFi. The online lender raised $1 billion at a $4 billion valuation over the summer, according to a report from the Wall Street Journal. SoftBank is among the startup’s investors


29. Stripe. The developer-focused payment service startup has launched integrations with Apple Pay, Bitcoin, Alipay, and even the Stellar currency. Earlier this year, Visa announced that it had made an investment in Stripe. The startup’s valuation hit $5 billion as a result of the deal, according to Re/code.

30. Tanium. The endpoint security software company announced a $120 million funding round at a $3.5 billion valuation this past September.

31. Twilio. The company that provides developer tools for VoIP calling and text messaging announced a $130 million funding round in July. Fidelity and T. Rowe Price both participated.

32. Uber. The app-enabled alternative cab service is one of the most highly valued private venture-backed companies. Earlier this month, Bloomberg reported that the company was raising $2.1 billion at the staggering valuation of $62.5 billion. Uber faces legal, regulatory, and competitive challenges, and the company’s self-driving car initiative also costs money. In August, Reuters estimated that Uber would generate around $2 billion in revenue in 2015.

33. Uptake. The data analytics company announced a $45 million round of funding in October, with Caterpillar (!) participating.

34. Warby Parker. The eyewear ecommerce company told the Wall Street Journal in April that it had taken on a $100 million round of funding, with T. Rowe Price leading the round. Other investors include J.Crew and American Express.

35. Zenefits. The human-resources software provider and health insurance broker suddenly rose to prominence this year, especially after it announced a $500 million funding round at a $4.5 billion valuation. These days, when you walk around in San Francisco, chances are you’ll see someone with a Zenefits hoodie. The company had been attempting to achieve $100 million in annual revenue this year, but last month, reports said revenue wasn’t growing as much as executives had hoped.

36. Zscaler. The cloud application security company announced a $100 million round in August, with TPG leading the round, and followed that up about six weeks later with news of a $25 million investment from Google Capital.

36 tech companies that could go public in 2016

IPOs hold their own amidst pressure from alternative funding and global volatility

IPOs hold their own amidst pressure from alternative funding and global volatility

After last year’s record-breaking level of activity, the volume of global IPOs in 2015 fell by 2% to 1,218 IPO listings and total capital raised declined by 25% to US$195.5b. However, despite falling short of 2014’s blockbuster year, these figures compare favorably to the 10-year annual global median of 1,241 deals raising US$176.1b, according to the quarterly EY Global IPO Trends: 2015 4Q. They also reflect divergent performance across regions in a higher volatility environment and the greater range of financing options now available.

Despite the closure of exchanges in Mainland China to new listings for part of the year, Asia-Pacific dominated 2015 IPO activity by number of IPOs and capital raised. It was also the only global region that improved on its 2014 performance.

Structural shift means multitrack is here to stay

2015 saw the proliferation of alternative private and corporate capital, which increased the number of funding choices for companies needing to scale quickly. Private equity “dry powder” (liquid assets set aside for investment purposes) is up 3% on 2014, at US$482.8b, and 2015 was a record year for M&A activity (the highest since 2007). This has impacted the number of technology companies listing – a sector that had been considered a mainstay of IPO activity, especially in the US. In the US, technology IPOs were 47% lower in 2015 by deal number and 27% lower by proceeds (excluding the impact of the Alibaba IPO in 2014). In the US, technology IPOs raised only US$8.1b through IPOs in 2015, compared with an estimated US$20b through private offerings1 in the first six months of 2015 alone.

Maria Pinelli, EY’s Global Vice Chair, Strategic Growth Markets, says:

“IPOs generally take at least two years to plan, but access to private capital is much quicker, enabling companies that need to scale rapidly the chance to lock-in the funding they need to generate competitive advantage sooner. With private investors prepared to invest greater amounts and at a later stage, we are seeing a structural shift in the market with multitrack fundraising strategies here to stay.

“As a consequence, we may see the balance shift in favor of a new kind of IPO, in which bigger, more stable businesses come to the public markets later in their life cycle, driven not only by funding needs, but also by strategic motivations, such as the desire to secure a higher brand profile and access to new markets via cross-border listing opportunities. Despite the abundance of private capital, the IPO market will remain the key exit route for financial sponsors.”

Asia-Pacific dominated in 2015

Asia-Pacific was the only region to improve on its 2014 performance with 673 deals raising US$90.2b, up 20% and 8% respectively on 2014. This positioned Asia-Pacific as the world’s leading region in 2015, accounting for 55% of global deal numbers and 46% of global capital raised. Seven of the world’s busiest exchanges by number of IPOs in 2015 were in Asia-Pacific, while four of the world’s busiest exchanges by IPO proceeds were also in this region, which accounted for 50% of top 10 global deals in 2015. Chinese exchanges re-opened to new listings in December with a strong pipeline of around 690 companies ready to go public.

Japan also saw a consistent level of deal activity across all four quarters in 2015. There were 98 IPOs – the highest number since 2007 – raising US$15.6b.

Pinelli says: “Activity in Asia-Pacific has largely been driven by the huge and ongoing demand to access the public markets in China. A range of economic headwinds, including uncertainty and volatility, low oil and commodity prices and exchange rate volatility ultimately failed to substantially impact the volume and value of IPOs across the region overall. With the outlook improving, we expect an uptick in new listings in 2016 with the pipeline already primed.”

Solid but not a stand-out year in EMEIA

2015 was a solid but not a stand-out year for IPOs in EMEIA, which came second in the global rankings both in terms of both IPO deal numbers and proceeds. At US$67.1b, capital raised was down 10% and the number of deals fell 5% to 346 IPOs. The year was marked by volatility, causing peaks and troughs of IPO activity, culminating in a very strong last quarter, which saw 69 IPOs, raising a total of US$24.0b in proceeds. This is 13% higher by deal volume and 389% rise by proceeds compared to 3Q15.

The strong proceeds seen in 4Q15 were largely caused by an increase in deal size, including six US$1b+ deals, raising in excess of US$15.9b, these deals accounted for 66% of capital raised on EMEIA exchanges in 4Q15. Four of these EMEIA IPOs were in the top 10 deals globally in 4Q15, while four listings also ranked in the top 10 global deals for the whole of 2015. These blockbuster deals fit into a longer term trend of increasing deal size on EMEIA main markets that moves counter to patterns seen elsewhere around the world.

“Much of Europe’s strength is attributable to the slow but steady economic recovery in the Eurozone. Loose monetary policy and an expectation that quantitative easing from the European Central Bank will continue into March 2017 and beyond look set to maintain investor confidence. The outstanding last quarter performance bodes well as we move into 2016,” Pinelli says.

US IPOs competing against private capital

2015 has been a challenging year for US IPOs, in large part due to the marked rise in the availability of private capital, which has diminished the number of technology IPOs. At 173, deal numbers were down 41% on 2014 with capital raised down 65% to US$33.3b, placing the US third in the global rankings in terms of IPO numbers and proceeds raised. However, deal numbers were only 5% below the 10-year median annual IPO deal number of 183 with the decline in capital reflecting the sharp decline in median deal sizes.

Despite the lower volumes, with volatility reducing, there is no shortage of buying interest in US IPOs. Although there has been some pressure on valuations, 66% of IPOs in the US priced within or above initial filing range in 2015. With average first-day returns of 16.9% for the year overall, newly listed companies are outperforming the broader market.

Pinelli says:

“2015 was a watershed year in the US with the abundance of private capital creating a real competitive challenge to the exchanges, many of which have responded by establishing their own private funding platforms. The JOBS Act has been pivotal too by raising the number of shareholders allowed from 500 to 2,000, which, at a stroke, enabled private companies to grow much bigger and delay the point at which they need to come to the public market.”

Prospects for 2016 improving

Economic fundamentals, volatility and monetary policy will all continue to have an impact on the IPO market in 2016, as Pinelli concludes: “With a stop-start year behind us, we expect something similar for 2016, although we’re cautiously optimistic the outlook could improve. The economic fundamentals are strong in most developed economies and any impending changes to monetary policy have been well signaled. With stock markets riding high and a lack of competition from other asset classes, investors remain keen to back equities as a source of potentially higher risk and return.

“Volatility, electoral uncertainty and the impact of geopolitical shocks will all impact the market in 2016, though we note with interest that IPOs seem to have been more resilient to volatility spikes this year than you’d expect, so it will be interesting to see if this continues in 2016.”

IPOs hold their own amidst pressure from alternative funding and global volatility

IPO Global Trends 2015 Q2

During the second quarter of 2015, global IPO activity maintained the steady pace set during the first three months of the year. By the end of the first half of 2015 (1H15), deal numbers had reached 631 IPOs, a 6% increase on the same period last year.

Improving economic backdrop will underpin deal activity
The economic outlook is positive. The International Monetary Fund (IMF) expects the world economy to expand by 3.5% in 2015, although growth prospects across regions remain uneven.

The economic pendulum has swung back in favor of developed economies, with the US resuming growth. Prospects are positive in many EMEIA markets although the possible Greek exit from the euro, and possibly the EU, weighs on Eurozone confidence at the time of writing.

Among the BRIC nations growth rates in Brazil and Russia continue to be low, but while growth in China has also slowed, it has not had an adverse impact on market activity. While the Indian economy remains strong, this has yet to feed IPO activity.

In the first half of 2015, US IPO activity has not matched 2014, which was the busiest year since 2000. The rush to take advantage of favorable market conditions and complete transactions year’s end depleted the IPO pipeline.

However, this is refilling from a spectrum of sectors, suggesting activity is set to rise.

IPO Global Trends 2015 Q2

As IPOs stumble, private equity prepares to pounce

Across Europe, companies hoping to list are having their plans dashed by plunging equity prices. But what’s bad for public stock markets may be good for private equity firms.

As IPOs stumble, private equity prepares to pounce.

The Biggest IPOs In U.S. History

Alibaba plans to go public at a price range between $60 and $66 per share, which could value the company at well over $150 billion.

Visa – IPO Date: 3/18/2008 – Proceeds: $17.9 billion


Facebook – IPO Date: 5/17/2012 – Proceeds: $16 billion


General Motors – IPO Date: 11/17/2010 – Proceeds: $15.8 billion


Kraft Foods – IPO Date: 6/12/2001 – Proceeds: $8.7 billion


United Parcel Services – IPO Date: 11/9/1999 – Proceeds: $5.5 billion


CIT Group – IPO Date: 7/1/2002 – Proceeds: $4.6 billion


The Travelers Companies – IPO Date: 3/21/2002 – Proceeds: $3.9 billion


HCA Holdings – IPO Date: 3/9/2011 – Proceeds: $3.8 billion


Goldman Sachs – IPO Date: 5/3/1999 – Proceeds: $3.7 billion


The Biggest IPOs In U.S. History

Largest Private Equity-Backed IPOs

Five of 20 largest PE-backed IPOs since 2013 were hotels or REITs; Hilton the largest hotel IPO ever.

Largest Private Equity-Backed IPOs.

Is the Tech IPO Window Opening a Smidge?

Analyzing the 10 Largest VC-Backed IPO/M&A Exits in Q2 2014. 7 of the top 10 largest venture-backed exits in Q2 2014 happened via IPO.

Is the Tech IPO Window Opening a Smidge?.

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