Expect US IPO Market to “Heat up” in 2017
I expect the US IPO market to heat up in Y 2017 after a soft 2016, driven by a rosey economic outlook and more certainty following the Donald Trumps election to US President, both factors that encouraged the Fed to hike interest rates Wednesday
The Fed lifted interest rates by 25 bpts Wednesday, only the 2nd increase since the Y 2008 financial crisis.
It also signaled a faster pace of rate hikes in Y 2017 as the Trump Administration takes over with vows to boost growth through tax cuts, spending and deregulation.
Public listings will also get a boost next year from private equity firms looking to exit their investments, executives at both the NAS and the NYSE told Reuters.
The Star-studded potential pipeline of companies set to make their debuts in Y 2017 includes messaging app Snapchat’s parent Snap Inc and ride-hailing company Uber Technologies Inc. both “Golden Winged Unicorns”, or companies valued at tens of billions of dollars.
“We are going to see more companies go public now that we are through with the elections,” said the global head of listings at NYSE.
We now have a clear picture of what the next 4 years will look like from a regulatory and policy standpoint.
Fact: Companies like certainty.
IPOs in the United States in Y 2016 fell by more 33% from Y 2015, and 25 of the 102 companies that made their debuts this year are trading below their IPO price, notably a favorite on mine, Ferrari (NYSE:RACE) is trading in the Green.
Joseph Brantuk, VP, and head of new listings and IPOs for NAS, said there were currently 96 active applications for public listings in the United States in Y 2017. Of these, 53 may be listed on the NAS.
The U.S. IPO market in Y 2016 is on track for its worst year since the financial crisis in Y 2009, when just 56 companies listed their shares.
Investors this year were skeptical of the Fed’s rate hike path mainly because policymakers signaled 4 raises, but held back until their last meeting of the year which finished Wednesday.
The higher rates may induce some private equity firms to take buyout-backed companies public, as higher interest rates make debt more expensive than equity as a funding source for companies to expand their business.
Also, several private equity firms are nearing their exit frame after holding on to their investments for 4 to 6 years.
Based on active IPO applications, Mr. Brantuk said technology, healthcare and financial sectors look the most active.
“We have never been busier.”