It is possible that the IPO of Servelec (SERV) will act as a catalyst for a significant shift in the type and scale of technology floats in 2014. More than 20 tech IPOs have joined the London stock market this year, with several more floating in 2012, yet the majority have been fast-growing yet small in scale, many fitting neatly into the microcap ecosystem.
Sheffield-headquartered Servelec is a different beast. It has a trading track record stretching back to the late 1970s. In its last published full-year results to December 2012, Servelec produced revenues of £40.8 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of £11.5 million. By contrast, WANdisco (WAND:AIM), an undoubted star of the tech IPO space recently, produced £3.7 million of revenues in 2012. Direct comparisons would be unfair given the pair's very different histories, products and growth profiles, but it illustrates the shortage of sizeable IPOs to date.
Servelec operates healthcare and energy/utilities automation divisions, and has been spun-out of Singaporean private equity house CSE Global. Offering the shares at 179p implies a £122 million market value, making it the UK's biggest tech float for three years, and the software sector's biggest since 2000. Judging by the share price response in early trading – the stock has jumped to 215p, a 20% premium to an already top-of-the-range valuations – the ravenous appetite of investors for many of this year's tech IPOs shows little sign of ebbing. Cornerstone institutions include Schroders Investment Management and Henderson Global Investors, notes the FT, with 19.7% and 16% stakes respectively.
Yet with multiple moving parts and seemingly little synergy between its two divisions, analysts at Megabuyte point out that it is on the healthcare side 'where we see the most reliable comparable valuations.' In this space independents such as Advanced Computer Software (ASW) and EMIS (EMIS) give pointers, both trading on rough 11-times trailing EBITDA multiples, compared to Servelec's IPO-priced 10.6-times.
Only time will tell if the market is right to chase Servelec beyond this valuation to the 12.8-times implied by early trading shifts. But wherever the market decides Servelec's valuation should stand medium-term, investors should welcome the tech IPO shake-up implied by its successful float. There's clearly professional and private investor cash sloshing around looking for exciting tech stories to invest in, so let's keep our fingers crossed that we'll see many more tech businesses of scale find their way onto the LSE's main or Aim markets.