What's going on?
The biggest British tech IPO in almost two years took place on Friday and investors loved it: shares of Alfa Financial Software jumped more than 30% on their first day of trading, valuing the firm at more than £1 billion!
What does this mean?
Alfa provides software to banks and other businesses that lend money to people and businesses in order for them to buy equipment like cars and computers (technically called “asset finance”). So, for example, Mercedes-Benz uses Alfa’s software to manage loans it gives to people buying its cars. Bank of America is another large client. 27 years after starting the company, its founding shareholder is selling almost one third of his stake to public market investors (e.g. big investment funds), making it one of Britain’s most valuable public tech firms!
Why should I care?
For markets: Investors are attracted by Alfa’s growth prospects.
Alfa has grown its revenue 24% per year over the past five years. It’s also made a profit margin that’s greater than 40% for each of the past three years (for every £1 of revenue, it made more than 40p of profit). So, it’s growing quickly and it’s more profitable than most public companies – a combination that investors like. The asset finance business as a whole is expected to grow about 40% between now and 2020, which should help Alfa to grow in future years as well.
The bigger picture: This isn’t your stereotypical “tech IPO”.
Unlike, say, Snap Inc., Alfa wasn’t founded a few years ago and isn’t backed by large investments from venture capital funds. Its founder, prior to the IPO, still owned more than 80% of the company he started almost three decades ago. It’s a relatively dry business that has taken a long time to build, which is perhaps one reason why the IPO of this tech “unicorn” hasn’t received much publicity.