Tech IPO market in Q2: Signs of life, but pulse still weak due to ‘valuation disconnect’

With the market for IPOs in the U.S. still in a coma, the four tech public offerings in the second quarter delivered a little hope that better days are ahead.

But only a little.

Those four tech IPOs in the quarter ending today are better than the big fat zero that was posted in the first quarter of 2016. But in its latest IPO quarterly report, Renaissance Capital points out that IPOs in general, and tech IPOs specifically, remain far below historical averages.

“The second quarter was still well below normal levels of IPO issuance as the June 23 Brexit vote and concerns about a potential US interest rate hike caused companies to push deals into the third quarter,” the report says.

Overall, there were 33 IPOs in the second quarter, up from 8 in the first quarter. But that was down from 70 in the same quarter a year ago, and below the average range of 40-50 IPOs for the period, Renaissance wrote.

For those worried about over-priced unicorn valuations, the report lends some credence to those fears. The report says IPOs are being “held back by a public-private valuation disconnect in the tech sector, wariness caused by poor trading of 2015 IPOs (69 percent below issue) and uncertainty over Brexit and potential interest rate hikes.”

But…if you’re looking for a little ray of hope, Renaissance does offer some.

For instance, Twilio’s recent IPO has so far been a hit.

“Only one IPO, Twilio, priced above the range – the first to do so since Atlassian in December,” the report says. “Technology IPOs delivered the best returns, led by Twilio (+99 percent) and Acacia Communications (+66 percent), which also had the year’s best first-day pops…The excitement over Twilio’s strong debut is an encouraging sign for growth companies looking to tap public markets in the 2H16.”

The upcoming Line IPO, which appears to be going ahead despite some market turbulence, is another positive sign.

Looking ahead, however, this hasn’t yet translated into a rush toward the public markets. Renaissance notes that there were 34 new IPO filings in the quarter, which is better than the 23 Q1 filings, but a relative blip compared to the 90 filings in the same period a year ago.

While Renaissance believes the IPO market can hold steady for the rest of this year, it projects more companies will continue to seek exits through acquisitions.