U.S. IPOs Drag, Weighed Down by Brexit, Other Uncertainty

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By Che Odom

July 6 — The number of U.S. companies debuting stock to the public continues to lag recent years, as uncertainty over Brexit and other world events make investors skittish.

A total of 56 initial public offerings began trading in the first half of 2016, which is the lowest number of IPOs priced in a first-half-of-the-year since 2009, according to Bloomberg Law Corporate Transactions data.

The total dollar value of IPOs decreased substantially this year. It was $9,074 million in the first half of 2016, a 62.3 percent decrease from $24,055 million in the first half of 2015, and a 72.7 percent decrease from $33,191 million in the first half of 2014.

The numbers are with respect to IPOs valued at $1 million or more that began trading on a U.S. stock exchange.

MGM Growth Properties LLC's $1.7 billion offering, which began publicly trading April 19, is the largest IPO so far this year, followed by US Foods Holding Corp.'s $1.18 billion offering May 25 (107 CARE, 6/3/16).

Boiling down what's happening in the IPO market into one over-arching narrative is difficult and often misleading, Joseph Hall, partner and head of the corporate governance practice at Davis Polk & Wardwell LLP, told Bloomberg BNA. However, “one constant that we seem to have had in the last 10 or 11 months is uncertainty,” he said.

Priced IPOs

The year began with the Federal Reserve debating another rate hike , with the latest uncertainty being the decision of U.K. voters to depart the European Union (123 CARE, 6/27/16).

In addition, China's economy, the valuations and business models of some prominent unicorns, and terrorist attacks are spurring more murkiness, Hall said.

A unicorn is a company that doesn't have an established performance record, with a stock market valuation of more than $1 billion

The race for the White House also is causing many to wonder “what the U.S. is going to look like in November,” Hall said.

Capital Raising

Arthur McGivern, a corporate attorney and partner in Goodwin Procter LLP's technology and life sciences group, said offerings will continue to be “at the mercy,” to some degree, of such “exogenous events.”

“The overall uncertainty in Europe has delayed the IPO pipeline,” he told Bloomberg BNA. “World events continue to be a drag on capital raising.”

Market uncertainty and risk appetite tend to be “conversely correlated,” Hall said. “The good news is that as some of this uncertainty begins to resolve itself, we could have a lot of pent-up demand available for the pent-up supply.”

Common Traits

Most successful IPOs this year shared certain similarities, McGivern said. These include “game changing” or “big-idea” technologies, an experienced management team and strategic partnerships that provided a stronger balance sheet, he said.

Cambridge, Mass.-based Intellia Therapeutics, a Goodwin Procter client that issued its IPO in May, had these characteristics, McGivern said.

The pharmaceutical sector has been the most active industry by IPO count in the last four years, with the biotechnology sector in second place, according to Bloomberg Law Corporate Transactions data.

The same trend continued in the first half of 2016. However, pharmaceutical IPOs have seen a steady decline in dollar value since 2013.

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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