IPO Trends to Monitor in 2018

IPO Trends to Monitor in 2018

Initial public offerings (IPO) have declined in recent years, with many high-value companies electing to remain private. As we move through 2018, IPO activity is projected to increase, although the extent of the rebound is a lot less certain.

 2017 IPO Market in Review 

Overall, the IPO market showed signs of life in 2017. According to Renaissance Capital, there were 160 total deals, which is double the number of IPOs in 2016. Proceeds also grew nearly 50 percent to $36 billion. The Renaissance Capital report does not include blank-check companies in its totals or IPOs that raise less than $10 million.

According to Renaissance Capital, IPO activity levels should have been higher, given the surging stock market and relatively low volatility. Its report cites uncertainties over the massive tax reform bill and the disappointing performance of several highly-touted IPOs as reasons for the lag.

Overall, the biggest drivers of IPO activity were the biotech and technology industries. Companies like AnaptysBio, Argenx, and Roku delivered stellar returns for investors. However, so-called “unicorns” stumbled mightily after their IPOs. While Snap’s much-anticipated IPO raised $3.4 billion, its stock dropped by 50 percent. Blue Apron’s IPO is also being called a dud. Its shares plummeted more than 70 percent in the wake of disappointing financial reports and operational challenges. 

Predictions for 2018

To date, there are more than 60 IPOs publicly in the pipeline, which is a decrease from 69 at year-end 2016 and 118 at year-end 2015. However, it could still be an exceptional year, with several highly valued companies poised to make their public debut in 2018. They include Lyft, Spotify, Dropbox, and Pinterest.

According to Renaissance Capital, 2018 could be a “banner year for technology IPOs,” given a “deep bench of tech unicorns that has had years to prepare offerings.” The report further states: “Volatility is low, corporate taxes are on their way down, and public market valuations are as good as they can hope for. Many tech firms will likely need capital, while employees and investors will seek much-needed liquidity.”

Impact of Confidential Filing With SEC

The IPO market has always been difficult to predict, given that the markets can shift so quickly and dramatically. The expanded ability to file confidentially with the Securities and Exchange Commission (SEC) also shields a growing percentage of IPO activity from public view.

Last summer, the SEC announced that it will accept voluntary draft registration statement submissions from all issuers for nonpublic review. The ability to keep filings confidential in the early stages of an initial public offering (IPO) was previously limited to emerging growth companies.

Snap and Twitter are two well-known examples of companies that previously relied on the JOBS (Jumpstart Our Business Start-Ups) Act provision. According to the SEC, 1,350 confidential IPO filings have been submitted, as of March 31, 2017. The SEC is hopeful that expanding the opportunity to all companies will encourage more companies to take the IPO plunge.

If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, at 201-806-3364.