A sharp drop in initial public offerings this year has underlined concerns about the state of public markets as fewer companies raise capital on the world’s stock markets.
Despite surging global equity markets this year, the number of new listings fell by a fifth to 1,237, the lowest level in three years, according to Dealogic data. These companies raised a combined $188.8bn, a 10 per cent drop from 2018 and also a three-year low.
“The pendulum has swung excessively in the direction of private markets,” said Mohamed El-Erian, chief economic adviser for Allianz. “Now we are finding that the pendulum is trying to swing back but it’s not that easy — making the transition from private to public markets is harder.”
The challenges in listing in 2019 were highlighted by Uber, which has suffered a share price fall of about a third since listing in May. WeWork also sent a shudder through the listing market after aborting its IPO in September when investors soured on the company.
Listings across Europe, the Middle East and Africa suffered the sharpest fall this year. The 179 IPOs marked a 40 per cent drop from 2018 and the lowest total in seven years. The poor showing was mirrored in Asia, where the number of IPOs hit a five-year low, and the Americas, where listings sagged 15 per cent.
The UK’s protracted exit from the EU put pressure on deals in Europe, with the number of listings on the London Stock Exchange, the region’s leading listing venue, dropping 62 per cent.
“It really shows the cloud of Brexit is hanging over companies and their decision to do an IPO or not,” said Paul Go, global IPO leader for EY. “We expect UK IPO activity will pick up starting in the first quarter [of 2020],” he said. This is in part because of greater clarity on Brexit after Boris Johnson’s victory in the UK general election.
Saudi Aramco’s $25.6bn listing on the local Tadawul stock exchange in November marked the largest one of the year, and the greatest sum raised in an IPO. This listing alone doubled the total raised across the Emea region.
Uber’s $8.1bn listing was the second-largest, followed by the $5.7bn Hong Kong IPO for Budweiser APAC, the Asia-Pacific unit of Anheuser-Busch InBev, the beer group.
A government shutdown in the US stalled the required approvals from the US securities regulator in the very early part of the year, before a burst of activity that included a number of “unicorns” — private venture-backed companies valued at more than $1bn. The initial excitement for these hotly anticipated listings gave way to disappointment as the share prices for many slipped throughout the year.
In addition to Uber, shares in Lyft, the third-largest deal in the US, have fallen more than 30 per cent, while stock in SmileDirectClub, the fifth-largest US listing, has fallen more than 60 per cent.
“The bigger deals, including the unicorns that finally came to the market this year, largely disappointed,” said Jim Cooney, head of equity capital markets for the Americas at Bank of America. Instead, “the outperformance came primarily from the smaller deals”, Mr Cooney said, such as plant-based protein group Beyond Meat. The food group’s shares have tripled since listing in May.
“Investors are becoming more disciplined and more sceptical when looking at companies that have not been able to turn a profit or even reduce their losses,” said Mr Go of EY. “They want to make sure IPO companies have the right business model.”
China offered a bright spot for the Asia-Pacific region. IPO volume jumped two-thirds to 289, including Hong Kong listings, helped by the July launch of the Shanghai Star market. The new market offers companies an easier path to listing in an effort to lure groups that may otherwise list abroad.
The fall in the global listings total comes despite record highs for stocks. The FTSE All-World index of blue-chips is trading at its highest level and is on course for its best year of performance in a decade.
The 100 largest IPOs around the world have returned investors on average 20.4 per cent since listing this year, according to Dealogic data. The best performer was Beijing Kingsoft Office Software, which has rocketed 240 per cent since listing on the Shanghai Stock Exchange in November, while the worst performer was SmileDirectClub.
An exchange traded fund from Renaissance Capital that invests in the largest US deals has gained 33.6 per cent this year, outpacing the broader market, despite the high-profile misses and the chill in deals after what Kathleen Smith, principal at Renaissance, called WeWork’s “kamikaze” listing attempt.
“Beyond these headline-grabbing disappointments, the IPO market had a mostly good year,” Ms Smith said.
Investment bankers are confident that the lacklustre performance of some of the big-name listings in 2019 will not sap investor appetite for IPOs in 2020.
“There is a healthy pipeline of private tech companies that are likely to tap the public markets in 2020,” said Greg Chamberlain, head of technology, media and telecoms equity capital markets for JPMorgan. “Many of these companies are disrupting large markets, taking meaningful market share and present compelling opportunities for investors.”