The decline of the IPO has been greatly exaggerated. Public market debuts by U.S. firms are expected to make further gains after a rebound year in 2017. In 2018, the market continues to evolve, with more filers using innovative methods of joining a public exchange and some exciting U.S. companies looking at their options.
In order to understand the driving forces, opportunities, and challenges in the US IPO market in 2018, Toppan Vintage commissioned Mergermarket to interview leading experts in the field.
Toppan Vintage question: Are there any hotly anticipated US IPOs for 2018? Do you think there is trepidation in the market after the underperformance of Snap and Blue Apron in 2017? Leading deal experts weigh in...
Alex Wellins, Co-founder and Managing Director, The Blueshirt Group says: It's tough for me to list specific names because we must retain the confidentiality of our clients. But at a high level, I think the well-known names such as Uber, Lyft, and others would be good candidates for IPOs in 2018. Our sources among companies, investment bankers and venture capitalists show that activity levels are very high. There's a lot of interest in going public. Two sectors to keep an eye on are the software sector generally and the security software sector within that specifically. I think we'll continue to see a lot of growth there. Many software companies have recurring revenue profiles, which are very attractive to investors given the high visibility of those business models. We believe the intense interest in security on a global basis is going to keep the security software sector very much in focus in 2018, helping to drive IPO activity.
There's no question that whenever there are high-profile deals that don't perform well it does increase trepidation. However, we think that there's an extremely strong cohort of companies that would look to go out in 2018. I think that it is very possible that the year will be more back end-loaded, and we will see more IPOs in the second half of 2018 than the first. However, we'll have to see how the market plays out. I do think each deal is unique and there are characteristics that drive each deal, but again, I would point back to the fact that as an asset class, generally technology IPOs have been one of the better-performing classes. It's shown that investors do have an appetite for IPOs generally and technology IPOs specifically. Every deal is instructive in its own way, but generally speaking, I think there's a lot of enthusiasm and an appetite among institutional investors for IPOs. Again, we think that we will have a better IPO year in 2018 than 2017.
Monika Driscoll, Brunswick Group adds: I don’t think there is any trepidation in the market. There are lots of quality names in the pipeline currently and investors have appetite for investments that can deliver growth and/or profitability, particularly as the number of public companies in the U.S. is still much lower than it was back in the heydays of the 90s. Investors remain discerning, but for companies that can articulate a sustainable business model and how they are clearly differentiated from their peers, there is going to be investor demand.
I wouldn’t take how any particular IPO did in 2017 as a leading indicator for 2018 and beyond. You can judge the execution of an IPO itself in the shortterm but the stock price performance in the months following an IPO isn’t going to tell you how the company is going to do long-term. There were plenty of naysayers in names like Amazon and Netflix back in the day and look where they are now.
In general, market conditions are very favorable right now for companies contemplating going public. In fact, with markets seemingly reaching new highs every day, any company choosing to not go public this year will be holding back because they are simply not ready or don’t have the need for public capital, barring some sort of a correction occurring.
Patrick Schultheis, Partner, Wilson Sonsini, Goodrich & Rosati weighs in: From what I know, there are a lot of really good companies around the country who are actively working on their IPOs. Given the confidential IPO process created by the JOBS Act several years ago, there are also lot of good companies that have already confidentially submitted their registration statement with the SEC. When those deals are ready to go, they'll make them public. There are other companies that have not confidentially submitted but otherwise have a timetable in mind that they're operating on, even if they haven't actually started the process.
Elizabeth Lim, Senior Analyst and Research Editor, Mergermarket says: There may be some concern on the part of tech companies looking to list in 2018 following the underperformance of Snap and Blue Apron, but both of those cases were also quite individual. In Snap’s case, it still faces intense competition from Facebook, and in Blue Apron’s case, it debuted just before Amazon was about to make its big play for Whole Foods, a deal that immediately threatened Blue Apron’s future.
That being said, there are still a few companies to watch for potential listings in 2018. Peloton is widely expected to list, which leads one to wonder if Soulcycle will attempt to do the same. Dropbox is another one to watch. And it remains to be seen if Aramco ends up finally listing this year, which would purportedly be one of the largest IPOs ever, if not the largest.
Apple competitor Xiaomi is also anticipated to consider a dual listing in Hong Kong and the US. AirBnB probably won’t list this year due to a need to determine its strategy internally. Uber is looking at a 2019 listing, according to CEO Dara Khosrowshahi, and Lyft could list sometime this year, having performed quite well in 2017.