Devolver Digital tipped for GBP1bn IPO, so why do tech companies of certain size choose London?

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Video game group Devolver Digital is reportedly coming to London later this year with a GBP1bn IPO.


The City has a solid and steadily growing number of gaming and digital companies, so its perhaps no surprise that another name is being added to the list – but why this one choosing London?


Sure, there is a number of quality video games stocks in the City, although none of the ‘AAA’ publishers.


Keywords Studios has been a great success story as its acquisitive growth strategy has pushed its move from AIM market IPO to GBP2bn martket cap FTSE 250 constituent, and, Codemasters’ December takeover by Electronic Arts was sealed at close to US$1bn.


So, there is some amount of precedent.


Devolver is best known as the publisher of Fall Guys – a relatively low-budget breakout success which effectively ‘went viral’ – and it separately develops a catalogue of its own indie game titles such as My Friend Pedro, Pikuniku and the Serious Sam series.


The firm presently has a team of 34 employees and is based out of Austin, Texas, which increasingly rivals (and perhaps beats) Silicon Valley as ‘the place to be’ for high growth tech companies.


A scan of the group’s quick facts don’t really scream London listing as the obvious choice.


There are levels to the game


London may not be the premier bourse for tech but it is seeing a meaningful number of floats of this sort of size.


Deliveroo was valued a bit higher – at the time of the listing, that is – with a GBP1.65bn raise putting its initial public worth at GBP7.6bn (after its calamitous debut, today its worth GBP4.3bn in the market).


Cybersecurity float Darktrace pitched at its IPO at GBP1.7bn, to value the company at around GBP2.5bn.


Alphawave IP Group, a chip-maker run between London and Toronto, was valued at GBP3.1bn on its LSE debut after its GBP360mln share sale.


Oxford Nanopore Technologies, a DNA analysis spin-out from the University, was valued at close to GBP2.5bn as it raised pre-IPO money in early May.


In March, consumer review website TrustPilot was issued GBP473mln of shares in its float to value the company at just over GBP1bn.


More than 30 new floats have been delivered in the year to date and many more are in the works.


Meanwhile, earlier this month a tally of London IPO activity prepared by the stock exchange noted that some GBP2.8bn had been raised through a list of floats that also included the likes of cannabis and nature-based medicines firm MGC Pharmaceuticals, David Beckham associated Cellular Goods, Kanabo, Dr Martens, Virgin Wines, MoonPig Group, Mast Energy and MusicMagpie.


Commentators have called it a renaissance for the City and so far it has been.


But, even so, London’s metrics remain a level below that of the IPO and SPAC volumes seen in the United States in 2021.


Global capital markets saw around 430 IPOs in the first quarter of 2021 with around US$105bn of proceeds raised – a lot of that, about US$45bn, came from North America whilst another US$34bn came from the Asia-Pacific region.


Those figures don’t include the Coinbase and Roblox ‘direct listings’ which saw the stocks join with market caps of US$86bn and US$30bn respectively without raising IPO funds, nor do they include any of the especially popular SPAC (special purpose acquisition company) transactions which see ready-made company’s deal-into already-listed cash shells.


There were close to US$100bn worth of SPAC deals in the first quarter, with the sum for the three months alone exceeding the total seen over the whole of 2020 – albeit, some commentators anticipate this activity may slow as the year progress amidst greater regulatory scrutiny.


Big fish in small ponds


London’s IPO class of 2021 have a particular theme in common, in most cases these stocks are sized to fit neatly in the FTSE 250 – or at least positions them at the fringes, ready to grow into the index.


For companies like Darktrace, Alphawave or Devolver Digital if its mooted float progresses, it means they can quickly become a recognisable mid-tier share in one of the world’s finance capitals – rather than sticking their elbows out to fight for oxygen down in the deeper ranks of the Nasdaq.


Perhaps London’s tech sectors lacks some of the glamour, sophistication or premium valuations as are often presumed in Silicon Valley caricatures.


Nonetheless if you are a growing company that’s worth a couple billion dollars, pound-for-pound there may be few places as compelling to build a name with investors.

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