Approaching the end of Q1, 2017 is set to be comeback time for initial public offerings (IPOs) worldwide. IPOs tend to cycle through “hot” and “cold” periods: when the economy is doing better, the market temperature rises, capital expenditure needs to increase and so firms tend to go public. 2016 turned out to be a rather “chilly” year, with a total of 1055 IPOs marking a 16% plunge in deal numbers and 33% in raised capital compared to 2015. Bulky geopolitical circumstances and highly volatile equity markets persuaded companies to delay public listing and find other ways to source capital. A new trend in IPOs thus developed, with firms taking time for intensive debt-financing and M&A treatments before going public at a higher valuation.
IPOs are in any case a desirable option for most private companies for a number of reasons. First-off, liquidity. R&D can always use some extra funds. Existing debt too. But it is also a way to reach new markets and customers, especially with cross-listing.
Who has already jumped on the IPO rodeo bull? And who shall be the next to do so?
Much awaited, Snap, Inc. (SNAP) (famous Snapchat parent company) entered the public market on March 3rd. Pricing their 200M share offering at $17 a share, the total offering gave Snap a market cap of $23.6B. This represents the largest IPO of a US-based tech company since Facebook in 2012. What troubles investors’ minds now is whether Snap will wind up as bullish as Facebook (FB) or fall much like Twitter (TWTR) quotes.
Propelled by Snapchat, Airbnb could be an even bigger IPO. A nine-year-old start-up, Airbnb is the largest lodging platform in the world. It has completely revolutionised the whole hotel business and for this reason is valued as much as Hilton and Hyatt combined, for a total close to 30B.
One more for the tech team, music streaming company Spotify was supposed to go public by the end of 2017 at something like 8B worth of valuation. Reportedly, the show has been delayed to implement financial metrics in order to hit between 11 and 13B. Founded in 2006 by Daniel Ek and Martin Lorentzon, and grown through venture funds Spotify has recently announced 50 million paid subscribers.
A less resourceful market as Italy’s is nevertheless ready for a new wave of listing. Fashion label Furla is expected to ring the bell in Milan Stock Exchange in a matter of months, while other fashion big hitters are likely to follow. Ferrovie dello Stato (Italian State Railways), the leading infrastructure and services company on the Italian rail network, is planning to sell at least 30% of its high-speed trains in IPO by 2018. To cap it all, worldwide restaurant and marketplace chain Eataly is also reported to have the table set for public listing.
However, the biggest bull to ride is oil giant Aramco IPO. With its $2 trillion valuation, based on Aramco’s right to exploit Saudi massive oil reserves, the equity sale is set to be the world’s largest ever. The government aims to sell up to 5% of the company, listing the shares in Riyadh and at least one foreign exchange, to raise cash for new investment strategies and diversify Saudi economy.
When will all these IPOs happen? It is difficult to say. As for the US system (Obama’s Jobs Act), it is legal for companies with less than $1B of annual turnover to secretly file for an IPO. This means that most of these companies will go public without allowing investors to check the paperwork. This is exactly what happened with Snap, Inc. and what is likely to become a trend for large offerings.