The initial public offering market stumbled last year amid stock market volatility, presidential election jitters, and a public-private valuation disconnect for tech companies. But market participants expect a rebound in 2017.
“Last year was an aberration because of the way the stock market behaved,” says David Erickson, a senior fellow and lecturer in the finance department at the University of Pennsylvania’s Wharton School and a former co-head of global equity capital markets at Barclays. “For 2017, I would expect a more normal IPO market, assuming markets behave.”
Last year saw 105 IPOs in the U.S., the fewest since 2009 and down from 170 in 2015. Dollar volume totaled $18.8 billion, the lowest since 2003 and down from $30 billion in 2015. The biggest U.S. IPOs last year were executed by Chinese logistics company ZTO Express, raising $1.4 billion; retirement-service company Athene Holding, $1.1 billion; and real-estate investment trust MGM Growth Properties, $1.1 billion.
The Standard & Poor’s 500 index plunged 11 percent from the start of the year through February 11, hurt by economic weakness overseas, particularly in China. After rebounding for a few months, stocks skidded again after the U.K. voted to exit the European Union in June. Stocks then bounced back, only to slump on pre-election anxieties. “The IPO market typically lags the performance of public indexes,” Erickson says. “Investors don’t want to buy companies without a track record if they’re losing money on companies that do have one.”
All that doesn’t explain what Renaissance Capital, an IPO research firm and money manager, calls in a recent report “the 800-pound gorilla still in the room: the two-year drought in technology IPOs, the bread and butter of the market. It is our long-held opinion that the primary reason for the lack of tech IPOs is the public-private disconnect on valuation.”
That means frothy tech valuations in private funding…