Picogiga, a French semiconductor maker with $11 million in annual revenues, has the kind of hot-growth profile that makes investment bankers weak in the knees. Picogiga is the global market leader in gallium arsenide wafers used to make chips for cellular phones and digital TVs. Its sales are rising by 40% a year, and profits are expected to be up 20% in 1996. But Linh T. Nuyen, a Vietnamese emigre and Picogiga's chief executive, long had little hope of taking his 11-year-old company public. Picogiga was simply too risky and obscure to merit an initial public offering.
Until now, that is. In a few weeks, Nuyen expects to launch a $14 million IPO on France's recently launched small-capitalization bourse, the Nouveau Marche. And several other new markets are also opening their doors to high-technology European startups. "It's very important for smaller European companies to have their own markets to raise money close to home," he says.
MARKET SAVVY. Picogiga is not the only small, Continental high-tech company suddenly finding itself able to go public at home or on overseas markets. As networking technology, the Internet, and multimedia give rise to a new generation of companies with global growth prospects, Europe's bias against risky technology stocks is undergoing a dramatic change. So investors are flocking to the Continent to catch the next success story.
Though the number of Eurotech IPOs is still small in comparison with the U.S., the emergence of a new class of hot startups in growth industries is what Europe desperately needs. Agile, entrepreneurial, and market savvy, they could become a key force for reinvigorating Europe's industrial base in the 21st Century and ameliorating chronically high levels of unemployment.
The number of early success stories is mounting. Lernout & Hauspie, a Belgian speech-translation company that makes software that helps computers translate written text in one language to speech in another, went public on the NASDAQ stock market in December at $11 a share. It's now trading at $45.50. Then there's Virtuality Group. A British virtual-reality company that makes headsets and software, it's expected to earn more than $9 per share this year after turning a modest loss in 1995. So far this year, its stock is up 8%. "There are great opportunities for investors," says Christian Deblaye, executive vice-president at Compagnie Financiere Edmond de Rothschild in Paris, who is considering starting a fund targeting high-tech European smaller companies. Adds Peter C. Conazatti, manager of a $133 million small-cap fund at Frankfurt's SMH Investment: "German midsize companies are diamonds."
WAVES OF CASH. In France alone, a dozen new funds are being created to invest in small, fast-growth companies, especially tech issues. Germany will launch six new funds this year. And existing small-cap funds are on the receiving end of an unprecedented wave of cash. The $56 million Invesco European Smaller Companies Fund, a U.S.-based fund launched a year ago, saw investment inflows rise by 67% in April over the previous month. "It's striking," says the fund's manager, Claire Griffiths. "A year and a half ago, it was hard to find names of companies you felt confident investing in." Some 25% of her fund is invested in tech stocks and an additional 20% in information technology and other services.
The Continent's ability to win over high-tech investors is a far cry from the 1980s, when an earlier wave of small-cap IPOs went sour. But Britain has already showed that investors are willing to ignore past losses. For good reason. An index of tech stocks compiled by the Anglo-Dutch investment bank ABN-AMRO Hoare Govett indicates that the value of investment in Britain's 87 medium- and small-cap technology issues has climbed 145% since 1990, vs. 57% for the overall British market.
Some analysts worry that Europe's small-cap upsurge could wane if the economy hits the skids and stock prices sag. But right now, bears are nowhere to be found. Europe is embracing high-tech startups like never before, enriching its economy and investors alike. If the winning streak continues, Europe's new markets may finally get used to giving technology startups the backing they need to play in the big leagues.