#5 Exit routes for Swiss startups: IPO, trade sale or M&A?

investiere
Aug 23, 2017 · 6 min read

As part of our Swiss exit infographic series, we’re highlighting some of the key takeaways from the 134 exits we tracked in the past 17 years. In case you missed our previous blog posts, check them out here:

#1 Introductory article on Swiss Exits Infographic
#2 Swiss cantons that produced the most exits
#3 Top sectors and industries of exited startups
#4 Most active Buyers of Swiss startups

In this post, we will dive deeper into which types of exit routes are the most common for Swiss startups.

Startup investments are highly illiquid and involve a high degree of financial risk. It is therefore of paramount importance for angel investors to assess a startup’s various exit options as a successful exit is the most common way to get a return on investment. There are three main types of exit channels for a successful startup. The company can either go public via an Initial Public Offering (IPO), be bought by a larger company (either partially or completely) or merge with another company.

In the venture capital industry, IPOs tend to get the most attention. However, trade sales are in fact a more common exit channel for startups. The 2016 CB Insights report on global tech exits highlights that in comparison to only 98 IPOs in 2016, a significantly larger amount of mergers and acquisitions took place with 3,260 in total. Several different studies such as the 2016 Pitchbook’s Annual European VC report and 2015 Tech.eu M&A analysis reveal that acquisitions are the most prevalent exit route in Europe and globally, typically accounting for 70–85% of all exits.

In the case of Switzerland, trade sales also represent the most likely exit route. 88% of all the 134 exits we tracked in our study were trade sales (119 in total, 107 of which were complete takeovers and 15 of which were majority acquisitions). We also tracked a total of 12 IPOs representing 9% of all exits in our study and only 4 mergers accounting for 3% of the total.

IPOs steadily on the rise

While IPOs are quite infrequent in the Swiss landscape, our results show that they are steadily on the rise. From the beginning of 2014 up until now, 10 IPOs have taken place accounting for the majority of IPOs that have so far occurred. 2016 was a record year for IPOs, producing a total of 5. Despite the upbeat, it is yet to be seen whether IPOs will become a common exit path for startups in Switzerland. Due to the low amount of IPOs, it is difficult to extrapolate IPO trends and developments based on such a small sample size.

IPOs are mainly a prevalent exit route for biotech and pharmaceutical startups. In fact, more than half of all the IPOs we tracked were biotech/pharma startups. Even though the overall data volume was low, various studies validate the point that biotech/pharma startups have a strong predisposition toward IPOs. The 2016 Ernst & Young report on global IPO trends highlights that in Q4 2016, healthcare was one of the top three sectors for IPOs globally and the 2017 PwC/CB Insights MoneyTree report shows that 1 in 4 of all US IPOs are biotech startups. Some reasons behind this phenomenon include long-term capital needs to develop certain drugs or to retain ownership of the company.

Going public on a diversity of stock exchanges

Whilst common perception is that most Swiss startups are publicly listed on the domestic stock exchange, our results show that they also go public on a diversity of stock exchanges. From the total of 12 IPOs, more than half took place on international exchanges. In fact, 3 went public on Nasdaq, one was listed on Nasdaq Stockholm and 3 went public on Euronext. The remaining 5 startups went public on SIX Swiss Exchange.

Who were the IPOs?

The five startups that went public on the SIX exchange involved the digital companies Bravofly Rumbo Group and WISeKey, the biotech company Cytos Technology (who later merged with Kuros Biosurgey), the biotech startup Molecular Partners, and the high-tech GPS chipset manufacturer, u-blox. On Euronext, two pharma startups and one MedTech went public, namely GenKyoTex, GeNeuro and Biocartis. Three Swiss startups went public on Nasqad and all were pharmaceutical companies, namely ObsEva, AC Immune and CRISPR Therapeutics. With regards to the Stockholm Stock Exchange, the digital startup TalkPool was listed there.

Trade sales take center stage

In Switzerland, trade sales represent the most common and likely exit route for startups. A total of 119 trade sale exits have taken place in Switzerland in the past several years. It also seems that more recently, trade sales are occurring more abundantly than before. Around 80% of the total of trade sales in which the startup was completely acquired occurred in the past 3 years. From 2004 until 2010, only 7 trade sales took place. Perhaps such an occurrence could also be attributed to lower transparency and awareness of Swiss exits in the past. Nonetheless the upward trend is certainly a positive sign for the general development of the startup ecosystem in Switzerland.

Trade sales in which the company was only partially acquired accounted for 12% of the total exits. From the total of 16 startups that were acquired by a majority, the most frequent buyers involved the Swiss media companies NZZ and Ringier, the pharma company Novartis as well as the insurance company Swiss Life. For more information on the most active buyers of Swiss startups, check out our article on the most active buyers of Swiss startups.

Only 4 Mergers in Switzerland

Mergers are quite infrequent as an exit route as various reports highlight. According to Tech.eu, 2014 saw 296 acquisitions, 9 mergers and 16 IPOs in Europe. With regards to the four mergers that took place in Switzerland, three of them were biotech/pharma startups which merged with Swiss pharma companies. These involved the biotech startup Evolva which merged with Arpida, the biotech Kuros Biosurgey merging with Cytos Biotechnology and the pharma company Relief Therapeutics which merged with THERAmetrics. One exceptional case involved a MedTech startup, namely Hocoma, which merged with the Hong Kong company DIH International.

The fastest types of exits

IPOs have traditionally been known for their longer time to exit and our data reinforces this point. Startups with IPOs as their exit route took an average of 10 years to exit whilst trade sales took 7.4 years. Mergers took slightly longer with 9.5 years. However, given that only 4 mergers and 12 IPOs have taken place thus far, it is difficult to draw conclusions based on the limited amount of data.

Exit routes with the highest exit price

IPOs have a reputation for being the most lucrative exit route for investors, provided that the proper market conditions are available. The 2016 Pitchbook’s Annual European VC report highlights that IPOs provide companies with high exit valuations. However, our study shows that the median exit price for all the 12 IPOs we tracked was CHF 97 million, slightly lower than the median exit price of CHF 133 million for the 20 trade sales that had disclosed exit prices. Nevertheless, due to the relatively low amount of data on exit prices, we cannot clearly deduce whether trade sales or IPOs have a higher exit price. A lack of transparency on startup exit price is a general challenge globally.

What we can infer from our data however, is that the spectrum of exit prices is very wide, ranging from more than CHF 500 million to under CHF 10 million. From the total of 20 trade sales with disclosed prices, the highest exit price involved the biotech company EngMab acquired by Celegne for CHF 570 million. The lowest priced trade sale involved the digital startup Libero Vision bought by the Norwegian company Vizrt.got for CHF 6 million.

For exits in which the company was only partially acquired, only two revealed the exit price. This involved the digital company Autoform, the majority of which was acquired by Astrog for CHF 700 million as well as the digital startup MoneyPark, 70% of which was acquired by Helvetia for CHF 107 million. Of the 4 mergers that took place, none revealed the exit price.

All in all, our findings reinforce the idea that trade sales will continue to dominate as an exit strategy for startups in the Swiss landscape in the years to come. Mergers and IPOs appear to be much lower on the radar, ever though there was a relatively high growth in IPOs after 2015.

Published on 23 August 2017, by Simona Domazetoska


Originally published at www.investiere.ch on August 23, 2017.

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