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Many believed 2019 would be a boom year for IPOs, with a record number of unicorns – start‑ups valued at more than a billion dollars – such as Uber, Airbnb, Lyft, WeWork, Peloton and Postmates expected to debut on Wall Street. Not so. As the year draws to a close, 2019 will be remembered as a year of failed, postponed and cancelled IPOs.
In May, Uber had one of the worst IPO performances in recent history. After starting with a float price of $45, the company’s shares are now trading at under $30. Uber’s rival, Lyft, isn’t faring much better and has lost roughly half of its share value since going public in April. “In 2019, the big IPOs in the US did not turn out well,” says Pierre Kiecolt‑Wahl, partner at Bryan, Garnier & Co and head of the Equity Capital Markets division.
The world’s leading ride‑share platforms are not the only ones whose share prices have taken a hit. Several other US companies have seen their share prices fall drastically since going public, such as Peloton (the leader in tech‑enabled stationary bikes), Slack (a messaging platform) and SmileDirectClub (a teledentistry company). Poshmark, Postmates and WeWork – three other US‑based unicorns specialising in e‑commerce, delivery services and coworking respectively – had planned to go public in 2019, but back‑pedalled at the last minute. Those three IPOs have been postponed indefinitely.
As a result, there were 26% fewer IPOs worldwide in the first nine months of 2019 compared with the same period in 2018, and the amount of money raised fell 24% to $114.2 billion. Asia fared relatively well, with only 9% fewer IPOs, while the biggest drops in activity were in the US (-23%) and Europe (-40%).
“2019 was disappointing,” says Philippe Espinasse, CEO of P&C Ventures Limited and author of the book IPO: A Global Guide. “The main reason why there have been fewer IPOs is investor sentiment. Investors don’t like uncertainty, and 2019 was filled with uncertainty, from Brexit and the China–US trade war to social unrest in Hong Kong, Spain, Chile, Lebanon and elsewhere.”
In such situations, investors tend to avoid risk. They prefer defensive assets and safe havens over IPOs. In order to maximise their share price and chance of success, several companies have postponed their IPOs and are waiting for market conditions to improve.
In September, for instance, US‑based entertainment juggernaut Endeavor cancelled its IPO, but has not completely shut the door on Wall Street. The company, whose holdings include the MMA Ultimate Fighting Championship, released a statement saying, “Endeavor will continue to evaluate the timing for the proposed offering as market conditions develop.” In other words: Endeavor is ready for Wall Street, but has decided to wait until Wall Street is ready for Endeavor.
ABUNDANT PRIVATE FUNDS
If companies can afford to be patient, it’s because there is no shortage of funding available. “Companies no longer need to rush to go public, thanks to the huge availability of private funds,” says Kiecolt‑Wahl. “Private funding is now in direct competition with public funding, that is to say stock exchanges. Companies can choose their source of funding.”
“Private funding is in direct competition with stock exchanges”
Pierre Kiecolt‑Wahl, partner at Bryan, Garnier & Co and head of the Equity Capital Markets division
Data specialist Palantir – a unicorn whose Wall Street entrance is among the most highly anticipated – has been around for 16 years, but it’ll probably be another several years before it goes public. According to the US press, the controversial company (whose clients include the CIA) is reportedly in the process of raising between $1 billion and $3 billion through investment funds, which would put its valuation at over $26 billion.
Late‑stage private funding of “scaleups” – companies well beyond the start‑up phase – is not exclusive to the United States, and has been holding up better than ever in Europe. During the first three quarters of 2019, more than 50 transactions of over €100 million were made in Europe – more than in 2017 and 2018 combined. Several of the companies that raised such huge amounts of private funds – such as UK fooddelivery company Deliveroo ($575 million in May), German neobank N26 ($300 million in January and $170 million in July) and French medical appointment platform Doctolib (€150 million in March) – are keeping stock exchanges waiting.
“Private funds will remain abundant for another while yet,” says Kiecolt‑Wahl. Does that mean the IPO market will remain lacklustre? Not indefinitely. “IPOs offer venture‑capital funds a way out,” says the analyst. “They allow funds to achieve capital gains.” In other words, as soon as conditions improve, funds will be pushing for a return to IPOs.
AIRBNB IN THE STARTING BLOCKS
The question is when that return will occur. In an October 2019 Forbes article, RiskHedge CEO Olivier Garret said that “2020 is shaping up to be the ‘Year of the IPO,’” with no fewer than 402 unicorns ready to go public. But Sandy Campart, researcher and author of the book Et si on osait investir en Bourse?, disagrees: “With abundant private capital and the global economy expected to slow in 2020, I don’t foresee any pick-up in operations next year.”
Many experts fall somewhere in between these two extremes. They are optimistic, but on certain conditions: “If Brexit is completed and China and the US reach a trade deal, the number of IPOs could go up in 2020,” says Philippe Espinasse. “But it will be important for the first IPOs of the year to go well.” Kiecolt‑Wahl agrees: “I think we will see an increase in volume in 2020. Many companies have postponed their IPOs, but they can’t keep pushing back the deadline forever.”
Airbnb, the company that revolutionised tourist accommodation rentals, is in the starting blocks. The company announced in September that it intends to go public in 2020, but gave no further details as to exactly when. Others are sure to follow suit.