The year started with a lot of enthusiasm among public investors eager to get a slice of the fame Unicorns. There was a hype build into the listing of Uber, Lyft and other Tech firms in 2019.
Everyone was hoping for blockbuster debut on Wall Street with sky high valuations, instead the IPOs were everything but stellar. The number of IPOs launched globally decreased even though the stock markets across the world reached big heights. The number of IPOs reached 1237, the lowest in three years and raised $189 billions a drop of 10% from 2018 levels according to Deallogic. The drop underlines the growing trend of decrease in public markets and increase in private markets over the years. The Economists would consider it as a trend towards concentration of wealth in few hands and contributing to inequality in wealth.
What caused the IPOs to flop across the globe?
There were several reasons for it. Multitudes of factors in different geographies affected it.
USA:
In the US primarily inflated valuations, concerns about no clear path to profitability and sketchy Corporate Governance issues torpedoed several IPOs particularly in the Tech sector. There were outside reasons as well such as Government Shutdown in the US in Jan 2019 which notably delayed the IPO process. Once the activities resumed Uber reached the exchange in March 2019. This was followed by listing of its competitor Lyft in May. Both IPOs did not do justice to the hype regarding their IPO. What followed next was deep skepticism for the other tech IPOs which listed in 2019. Most of the companies including Peloton, Pinterest, Slack failed to excite investors. WeWork even could not reach the podium whereas Beyondmeat was handsomely rewarded.
This clearly shows investors are looking at companies from a profitable growth prospective rather than just growth at the cost of burning cash.
This clearly shows investors are looking at companies from a profitable growth prospective rather than just growth at the cost of burning cash.
Outside USA:
IPO listings were disappointing in Europe, Middle East, Africa. The 179 IPOs marked a 40% fall from the 2018 levels and a lowest of 7 years. The Brexit uncertainty heavily affecting the listing in UK and elsewhere in Europe. London Stock Exchange showed a 62 percent drop in listings.
Asia also mirrored the poor showings of other geographies. The Hong Kong unrest also played a role in this along with the US-China trade tensions. The Aramco IPO of $26.5 billion on the Tadawul stock exchange was the largest this year. The listing helped doubled the total from EMEA region.
There were few big deals such as the Aramco, Uber, Lyft etc but most of them did not do as well as it was expected from them. The number of IPOs did jump in China largely due to the set up of the Shanghai star market. The new market offer a hassle free listing for companies.
The IPO volume across different countries is listed below by Deallogic.
US and China led the race in terms of IPO. There were several emerging countries which are starting to come up on the radar. Thailand, Saudi Arabia made it to the list, the later for the Aramco IPO.
The 100 largest IPOs have returned 20.4% according to Deallogic. The best performer was Beijing Kingsoft office software which rocketed 240 percent since listing on the Shanghai exchange. The worst one was SmileDirectClub.
Investors feel that in 2020 there would be higher possibility of greater number of IPOs as the macro economic scenario become better. The trade war between US and China is gradually settling down and could enable more Chinese firms reaching US for IPO. The bigger mandate for Boris Johnson sets the path clearly in the direction of Brexit thus reducing the air of uncertainty and chaos. This will help companies make their decisions. There is a list of companies which are expected to go for IPO and it remains to be seen if there are any lessons learned from 2019.
Muses 