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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Categorized | Capital Markets

Dell’s SecureWorks unit IPO disappoints

Posted on April 22, 2016

Dell computer cyber security

Dell computer cyber security

SecureWorks, the cyber security division of Dell, raised less than expected with the first technology initial public offering of 2016 casting doubt on the outlook for future deals.

The company sold 8m shares at $14 a piece, according to a person familiar with the deal, for $112m. That is down from the 9m shares it had planned to sell at a range of $15.50 to $17.50.

    The deal is the first US listed tech IPO since Chinese peer-to-peer lender Yirendai went public on December 17, according to Dealogic, and comes after 30 tech deals in 2015 raised just less than $10bn. There had been hopes for high demand that would pave the way for what is thought to be the many tech offerings in the pipeline.

    But the disappointing IPO cast a pall over what had been positive recent listings from exchanges operator Bats Global Markets and dialysis provider American Renal Associates. They priced at the high end of their ranges, traded up and created enthusiasm about the health of the US listings market.

    “There is excitement over the first tech IPO of 2016, but investors are still doing their homework,” said Matthew Kennedy, an analyst at Renaissance Capital, which runs IPO-focused exchange traded funds. “It does have implications for the large backlog of tech IPOs that are waiting.”

    As US stocks sold off in the first quarter, more companies delayed deals than executed them. Public tech listings in particular have been few and far between over the past year. Emerging companies instead have used private transactions to raise billions of dollars of funding at high valuations that don’t appear to be matched in the current state of the public markets.

    SecureWorks also priced on a day when the tech sector was hit with bad news. Alphabet, the parent of Google, and software maker Microsoft, fell sharply in after-hours trading after the groups revealed weaker-than-expected quarterly earnings.

    SecureWorks also went public at a time when private funding for cyber security start-ups is proving difficult. After years of large increases in venture capital going to companies providing a new generation of cyber defences, far beyond antivirus and firewalls, some start-ups have said it is becoming more challenging to attract funding in what is now an overcrowded market.

    There is excitement over the first tech IPO of 2016, but investors are still doing their homework.

    – Matthew Kennedy, Renaissance Capital

    As cyber attacks rise, investors have been drawn to companies offering solutions, but appear to be realising that even these new products cannot single-handedly stop hackers and that many customers do not have sufficient IT security teams to deploy the new software.

    Shares in public cyber security companies have also been hit, with FireEye down 60 per cent in the past year, Fortinet falling 20 per cent, and Rapid7 down 52 per cent since its initial public offering last summer.

    The SecureWorks IPO comes as Dell is funding a $67bn planned acquisition of storage maker EMC. Cash raised will stay with the company, though the public listing would make it easier for Dell to shed some or all of its remaining stake at a later stage.

    Additional reporting by Adam Samson in New York