Equity bulls spur IPO markets into action

Every time you look around these days, it seems as if another big company is heading to the public markets.

In the US, half a dozen technology groups — including Snowflake, Unity and Asana — unveiled prospectuses last week. And Airbnb is coming down the track behind them: the accommodation group last month said it had made a confidential filing for an initial public offering. The Hut Group, which is in retail and tech, has revealed plans for the UK’s largest listing in years and Chinese fintech Ant Group is lining up for a blockbuster flotation that could raise a record $30bn.

The flurry of activity has grabbed attention, particularly because new listings dried up during the Covid-19 lockdowns and resulting market turmoil. This year to date, only 16 new listings globally have raised more than $1bn, according to Refinitiv data, although smaller IPOs helped push the total for flotations to $96.6bn by the end of August, up 10 per cent year on year.

Yet more and more companies are being tempted back into the market by the global equities bull run — August had the sharpest equity rally for that month since 1986. The S&P 500 has done particularly well, having wiped out its pandemic losses and hit an all-time peak. But Europe and Asia have also seen sharp gains.

Private company executives and owners are seeing those increases and the recent successful IPOs of companies like Lemonade, an insurance start-up, and online car sales group Vroom, and they want to get in on the action. “IPOs are historically the riskiest asset class and have traditionally been the last type of equity deals to come back after similar market dislocations,” says David Ludwig, Goldman Sachs’ head of Americas equity capital markets. “When the initial transactions went well, it gave other companies confidence to re-initiate or accelerate their plans.”

Bankers and investors also discovered that travel bans and working from home were not as big a barrier to listing as some had feared. Video drafting sessions and online presentations have turned out to be acceptable substitutes for meetings in person and road shows.

There have even been some advantages: virtual meetings have made it easier to reach investors outside New York, San Francisco and other centres, and business did not grind to as much of a halt in August as usual. “A lot of clients feel that since they are stuck in their homes, they might as well be productive. Everyone is working around the clock and everyone knows where they can find you,” says one top banker.

After years when many high-profile US companies opted to stay private, the plans to list Palantir (founded in 2003), Hut Group (2004) and Airbnb (2008) are spurring new hopes for vibrant public markets and more choices for retail investors.

Yet the revival is unevenly spread. This year’s new listings have provided a feast for US tech and healthcare companies. More money has already been raised this year on the Nasdaq exchange, which tends to attract such groups, than for any full year since 2000, during the dotcom bubble. “There’s a view that the world is going to change a lot faster because of Covid. For the right story around the right theme, the market is willing to believe,” says Eddie Molloy, Morgan Stanley’s co-head of Americas equity capital markets.

But it has been a famine for London, where funds raised are down 87 per cent year on year, and Europe more broadly. Part of the problem is that the European listing process takes longer than that of the US, so the disruptions in March and April are still affecting the immediate pipeline. The European market also relies more on privatisations and listings of private equity-owned companies in “old economy” sectors.

As long as the current stock market recovery remains heavily weighted toward tech, new floats of industrial and other traditional companies will remain few and far between.

Meanwhile, western listings are starting to lose their appeal for some Chinese growth companies. The fastest growing section of the IPO market this year is on the mainland Chinese exchanges. New listings — 228 so far — are running at double last year’s rate, and the nearly $31bn raised to the end of August is the most since 2010.

To be sure, Chinese markets have benefited from the country’s earlier emergence from the Covid-19 lockdown. But rising tensions between Washington and Beijing are also key. The Trump administration has proposed banning Chinese companies that do not comply with American accounting standards from listing on US stock exchanges, and Chinese authorities are keen to encourage more domestic companies to keep their listings local.

“They want domestic investors to be able to participate in the China growth story. Why should all the great appreciation go to overseas investors?” says Jason Elder, a Hong Kong based partner at the law firm Mayer Brown.

There are exceptions, such as Chinese electrical vehicle maker Xpeng, which just listed in New York. But the history of Jack Ma’s biggest companies tells the broader story. When Alibaba made its record-breaking debut in 2014, it chose the New York Stock Exchange. It then added a Hong Kong listing in 2019. Ant is headed straight to Hong Kong and Shanghai.

Don’t break out the champagne for western public markets just yet.

brooke.masters@ft.com