Famine after feast as US listings get sluggish start

It has gone from feast to near famine in the US listings market so far this year.

After a robust 2014 when companies raised nearly $100bn in initial public offerings, marking the best year since the red-hot days of the dotcom era, the market for US-based listings has appreciably slowed of late.

As the second quarter gets under way the performance of the broader market, which has been skittish of late, remains a key factor for the IPO calendar as well.

"When issuers are evaluating when they want to come into the market, valuation is a core driver of timing - outside of readiness in general," says David Hermer, global head of equity capital markets at Credit Suisse.

With US companies releasing their latest earnings results in the coming weeks, the broad market may well remain under pressure and experience larger swings in prices, an environment less conducive for convincing new companies to initiate a market debut.

"The more volatility you see in the marketplace, generally, it's harder to achieve a fuller valuation," says Mr Hermer.

Other dynamics are also exerting an influence. Tech companies, for example, have been lured to the private market where they have raised large sums at attractive valuations, thereby reducing the red tape associated with a public deal.

"There has been a dearth of IPOs in the first quarter and a lot of that has been attributed to the fairly active private market, which has both supply and demand working in its favour," says Michael Millman, co-head of equity capital markets, Americas at JPMorgan. "A meaningful number of private companies for a number of reasons want to continue to be in the private domain as they scale."

Interest among investors has been strong, with traditional mutual fund managers buying private deals. Tech companies raised $1.2bn in the first quarter by going public compared with an estimated $10bn raised in private rounds during the same period, according to Renaissance Capital, a manager of IPO-focused exchange traded funds.

While this trend has been most visible in the tech sector, with high-profile start-ups like Uber, Pinterest and Snapchat raising billions of dollars at attractive valuations, it is spilling into other sectors, bankers say.

In part, the current easing in listings marks a natural pause following a bumper year. A record-breaking IPO from Alibaba, the Chinese e-commerce giant, notably boosted last year's totals by $25bn.

"Last year as a whole was such a strong year," says Evan Damast, global head of equity syndicate at Morgan Stanley. "Anything that could go, or was ready to go public, went."

For the first quarter of 2015, US-listed IPOs totalled just $6bn, half the volume of the same quarter a year ago and the slowest start to the year since 2010, according to Dealogic. Only one deal topped the $1bn mark and of the 37 deals pricing since January, just four were technology companies - typically a mainstay of the IPO market.

But bankers are optimistic and say the IPO market is rebooting with listing expected to pick up as the second quarter progresses.

"The market has started at a slower pace, but there are a lot of decent sized IPOs to come," says Mr Hermer.

Also, energy, an area where listings dissipated in the first quarter, is expected to rebound as companies and investors adjust to the drop in crude oil prices, bankers say.

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Shake Shack trades at about $50, up from its IPO price of $21.

And next week, three well-known companies will list in what will be a test of demand this year. Online retailer Etsy, party supply stores Party City and Virtu Financial, a trading firm, are set to price. Univision, the largest Spanish language broadcaster in the US, is gearing up for an IPO this year that could top $1bn.

Even though the number of IPOs so far this year is down, these deals are still beating the market, which bodes well for demand. IPOs priced in 2015 are up 16 per cent, Dealogic says, compared with a rise of just 1.1 per cent for the S&P 500.

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