Storm clouds in overseas markets are dampening a heightened optimism for IPO pipelines in developed markets, and “testing the waters” bring different imagery to mind that THIS blog illustrated. While investor confidence will ultimately determine the pace and growth of IPO activity in 2016, a recent EY report – Global IPO Trends – points to some key factors:
- Low interest rates and quantitative easing by the European Central Bank and Japan mean that liquidity remains abundant
- Lower oil prices are a boost to economic growth
- The lower gold price suggests market confidence despite the increased volatility
Certain sectors may experience rougher conditions in the near term, as PwC capital markets partner Howard Friedman and Bloomberg’s Alex Barinka warn of a U.S. market selloff affecting biotech IPOs, for instance. Overall, however, an uptick in U.S. high-frequency indicators such as employment, retail sales and exports, paired with low oil prices, an expanding GDP, and healthy consumer spending all provide a positive backdrop for IPO confidence. As 2015 drew to an end, the Fed finally provided insight into its plans for interest rates, raising rates in December for the first time in nearly a decade.
Although the liftoff has begun, its rate hike path is expected to be slow and gradual, which should remove some level of uncertainty from markets. Additionally, analysis by law firm Morrison Foerster points to the JOBS Act, and its “test the waters” provisions, as a further incentive for U.S. companies to explore an IPO option, especially those with smaller revenues.
Support from Vintage no matter the path
Companies themselves are investigating financing options beyond an IPO — like M&As – and exploring all potential exchanges in an effort to optimize strategic options, which is a prevalent trend among tech companies. A continuation of the market volatility seen during the fall of 2015 would impact the length of time an IPO window is open, requiring that companies looking to float have a compelling equity story in place – one well-suited to their regional presence and their industry – and the ability to jump into the market swiftly if necessary.
Overall, there is a level of optimism for the 2016 IPO market, driven by increased confidence among investors and market players and the ability for companies to file confidentially under the JOBS Act.