A grand total of 0 IPOs were taken to market in January 2016 compared with 15 in January 2015, the first time this has happened since the depths of the Great Recession in 2009. This all but seals a trend noted by Renaissance Capital in their 2015 US IPO Review Report from which some relevant points are as follows:
- New issues declined in 2015 to 170 from 275 in 2014, down 38.2%.
- The number of PE backed new issues declined to 39 from 71 in 2014, down 45.1%.
- The IPO pipeline stood at 118 companies as of December 31, 2015, with only 10 companies filing in December, the slowest December since 2008.
- Average 2015 US IPO returns, based on stock price at December 31 was -2.1%, down from increases of 21.0% and 40.8% in 2014 and 2013 respectively notwithstanding the declines in US markets over the last 31 days.
We believe volatility will continue well into 2016 with international currency & finance, the China factor, oil, Middle East turmoil, and European Union malaise adding to the uncertainty recipe, not to mention a US election, the outcome of which is highly uncertain.
The potential implication for M&A and private equity in 2016 as we see them could be as follows:
- Emergence of short and distinct windows of opportunity to go public throughout 2016 will drive the manic stop/go behavior of the IPO and raise the stakes on Company management to make sure business, market and regulatory issues are well managed.
- The culling of the “Unicorn”. Valuations on rapidly growing privately held social media, sharing economy, SaaS, and technology services businesses could suffer a precipitous decline in price, much like oil over the last 18 months.
- Increase in Strategic M&A across the board. With the IPO exit channel challenged and dry powder at public companies and within PE funds, we could see more M&A activity driven by the tempering of seller valuation expectations given the volatility headwinds.
- Service Providers –Over the last three years, accounting firms, consulting firms, and law firms with specialist practices in preparation for IPO have seen business booming – they may come under some financial stress.
Ironically, the Month of January has its etymology with Janus, the Roman God of doors and beginnings and with the Month of February originating from the Latin word “februm” meaning “purification” who knows what is in store for the balance of Q1!
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