Is an IPO better for exiting a business than an M&A? New research suggests so
A long term study of the UK's top 500 start-ups shows their collective value has risen more than six times between 2011 and 2017
For business owners planning their exit strategy, a new long term study suggests that choosing an IPO (initial public offering) is a better option than an M&A (merger and acquisition).
The data, compiled by online investment platform SyndicateRoom in partnership with Beauhurst, tracks the financial performance of the UK's top 500 start-ups over a period of seven years between 2011 and 2017.
In that time, businesses that exited via an IPO, which is the first time the stock of a private company is offered to the public, grew faster than businesses that excited via an acquisition – with scale-ups that went on to list on NASDAQ growing in value by a staggering 98% per year.
One start-up in particular, London-based T-cell therapy business Adaptimmune, grew at an annual rate of 107% and went on to list on NASDAQ with a valuation of over £1.2bn.
In general, of the 519 companies studied, 14% had gone onto exit – and in the process successfully generated £3,785,896,091 worth of returns for investors.
These successful businesses even outperformed their peer-group by increasing in value at 42.6% per year up to the point of exit.
For investors, the value of their investments rose by 30% per year over this seven year period.
Not all good news, 14% of the top 500, which amounts to 73 in total, have already failed – with a majority (31) failing in 2017.
When divided by sector, the UK's much-heralded fintech sector comes out strongly on top – with businesses operating in the financial services space enjoying the highest rate of growth (63% CAGR), more than double the CAGR of the cohort as a whole.
Startups 100-ranked TransferWise’s 183% CAGR topped not only the table of financial services businesses, but the entire cohort.
Education was the worst preforming sector at 6.32% CAGR, which may come as a surprise given the value personal development holds in society – though as many business owners within that particular industry have learned – value and profit are not the same thing.