Tech stocks around the world are pushing all-time highs, spurring headline-grabbing listings by the dozen, yet in Europe the biggest news in the sector is a company looking to leave public markets.

Startup factory Rocket Internet SE has brought at least nine initial public offerings to market over the past five years, but said on Sept 1 that it would be "better positioned as a company not listed on a stock exchange.” Its rationale for the move is all too familiar: Access to private funding is so easy that there is little need to maintain a listing.

The decision adds to the long-running woes of the technology industry in Europe’s capital markets. Investors have lamented the lack of European champions to rival US heavyweights like Apple Inc and Google parent Alphabet Inc, and there’s no sign the region is about to produce one any time soon.

Europe’s biggest issue is a scarcity of tech companies, producing fewer unicorns and startups. Even for those that do start in the region, the United States often becomes their biggest market, according to Aukse Jurkute, a managing director at Bank of America Corp leading tech origination in its equity capital markets franchise for Europe, the Middle East and Africa.

Only 16 tech companies have floated in Europe this year, the lowest in more than a decade, according to data compiled by Bloomberg. The sales raised US$650mil , only a sliver of the US$9.2bil raised in the United States and the more than US$23bil in Asia, the data show.

Moreover, private investors flush with cash have bought out many IPO candidates, pushing up valuations for unlisted companies in doing so. Meanwhile, European public markets have balked at the high prices. The valuation gap is even more pronounced when compared with the United States and Asia, making a listing this side of the pond even less attractive for tech companies.

"If Tesla were listed in Europe, it would be at half or even 20% of its current value,” said Shaunak Mazumder, a global equities fund manager at Legal & General Investment Management. US investors understand the power of disruption and have "seen this movie play out before”, whereas European funds are more focused on profit at the expense of innovation, he said.

There are a larger number of dedicated tech investors in the United States that understand niche tech businesses better, alongside a wider group of peers and comparable stocks in that market, "but it doesn’t mean you can’t get good valuations in Europe,” Jurkute said.

Fostering tech

One area of the tech universe that has flourished in Europe is the crossroads with financial services. Some of the continent’s largest IPOs in 2019 came from payments processors Nexi SpA and Network International Holdings. And on Sept 1, fintech scale-up Unifiedpost Group SA said it plans to list on Euronext Brussels and expects to raise as much as €212mil .

The European tech industry has "the ability to play a part in each of the four main tech sectors - semiconductors and associated capex, tech hardware, software and fintech,” said Debasish Chakrabarti, a portfolio manager at Alliance Bernstein, adding that some of the best fintech companies such as Adyen NV and Worldpay Inc have come out of Europe.

Still, European exchanges generally lack listing rules that give founders more voting rights and greater protections, which has lured some tech companies overseas. Swedish streaming service Spotify Technology SA and UK-based retail technology group Farfetch Ltd have opted for US IPOs in recent years.

The trend hasn’t gone unnoticed. European regulators are attempting to boost tech listings and prop up startups amid the coronavirus pandemic. France set up a €4bil bailout fund for small homegrown tech companies, with Germany also looking at a survival package for the sector.

And there are signs local exchanges could become more accommodating. Online beauty retailer The Hut Group Ltd is listing in London with a structure that will give its co-founder, Chief Executive Matthew Moulding, a so-called golden or founder share with the power to veto any hostile takeover attempt for three years.

"Quite a few sizable” tech listings are expected to come to market in the region within the next nine to 12 months, according to Jurkute. "Anything from software, security, e-commerce, wider fintech and a number of other businesses are accelerating their IPO timelines because they are benefiting from Covid,” she said.

Many tech companies may have an easier time floating than those in other industries, said Erik Anderson, head of corporate broking at Panmure Gordon. "It’s a sector you would look to for Covid winners, a number of businesses have actually made gains during the lockdown,” he said, adding that as many listed companies have suspended financial guidance, investors can take comfort from the growth prospects within the tech stock universe.

European tech companies that are said to be lining up IPOs in the coming months include Polish e-commerce giant Allegro and British cybersecurity firm Darktrace. Swedish payment provider Klarna Bank AB has also flagged it is preparing to go public in the next year or so.

 - Bloomberg