Initial Public Offerings

US IPO Market Struggling Badly in Contrast to Global Trends

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Performance among newly floated companies in America in 2015 was far from positive on the whole, in stark contrast to what’s been going on in these same contexts for businesses based elsewhere around the globe.

Remarkably, from a historic perspective last year’s performance of US IPOs falls into almost a league of its own, with such a poor index that has rarely been recorded before.

Plus, the 2015 performance of US IPOs contrasts sharply not just with what was going on globally during the same time period but also with the way the American market performed in the previous year.

US IPOs falls – Trending down

There were as many as 229 US headquartered companies that undertook initial public offerings of their shares over the course of 2014, which is a record number for a 12-month period. Gross proceeds from these IPOs amounted to a staggering $55 billion, which was the highest total amount recorded in this context since 2000. But last year was a very different story indeed with the number of American companies filing the relevant papers and going public drying up to a truly remarkable extent. As compared with 2014, last year saw a 40 per cent drop in the number of US IPOs, which meant only 137 businesses took the plunge and went public during that 12-month period.

Meanwhile, gross proceeds from these public offerings were also cut in half as compared to 2014, with only $28.3 billion raised.

International upturn

But while the US has had what for many will represent a disappointing period in terms of IPO performance, there are other parts of the world reporting rather different trends. Assessments of preliminary filings from companies based outside the US put the number of businesses going public on a global basis in 2015 at a level not seen since 2009.

Japan and India stand out as the two countries where IPO activity has been particularly strong in recent months, with each of the two Asian countries seeing 18 companies filing to go public over the course of 2015.

Market volatility

Worryingly perhaps for anyone watching the US IPO market into 2016, there has been little traction to encourage the notion that a strong upturn in activity might be on the cards any time soon. The key reason for this could be the market volatility that’s currently out there and apparently casting doubts in the minds of potential investors and companies, whose bosses might otherwise have been inclined to take their operations public.

There have also been a relatively large number of cases so far in 2016 in which US companies have completed initial preliminary filings with a view to carrying it out only to withdraw their paperwork and postpone those ambitions.

Cautious investors

In addition to a general market volatility, companies that might consider floating on one or other US stock exchange in the coming months will need to factor in the notably limited interest in their stocks among American investors.

For now at least the narrative is one of retreating investors and a relative lack of confidence in the companies that are being made public, which has left many of those which undertook IPOs in 2014 and 2015 trading notably below their initial offering prices.

Indeed, a recent report from the Wall Street Journal revealed that more than 70 per cent of all the US companies that went public in 2015 were trading below the price of their initial stock offerings as of February 2016.

The same report suggested that the average performance level for the stocks assessed in that context was a price point of 20 per cent below IPO levels, with only one of the companies involved in the 10 largest IPOs recorded in 2015 trading above initial offering levels.

Quite what the future holds for IPOs in the US remains to be seen but many will be hoping for a turnaround in sentiment and investment levels sooner rather than later.

But for now at least 2016 looks like a good time for IPO investors to look beyond the US and to international markets in search of value and positive prospects when it comes to newly public companies with big ambitions.

Related topics:Overview Wall Street
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