US IPOs got off to a slow start this year but a huge shot of adrenaline coming in May might be enough to turn the whole year around, according to bankers who say they have not been able to catch a breath.
The massive US$8bn IPO of ride-sharing service Uber Technologies (see Top News) will chip away at the deficit, and there have been a succession of other large deals, including Avantor and PIMCO Mortgage Income Trust to aid the recovery.
Up until last week, when the US/China trade dispute spooked investors, markets were at or near all-time highs. Volatility was also low, with the VIX volatility index steadily below 15 for six weeks, after it spiked above 20 in March. The subdued VIX should aid deal flow, one banker said.
Coming into May the US IPO market was in quite a deficit compared with the first four months of 2018. The number of IPOs had fallen 57% to 37 and the proceeds had plunged 87% to US$9.1bn.
Comparisons were always going to be tough this year considering the massive amount of deals done in January 2018. But a US government shutdown in the early part of this year shuttered the Securities & Exchange Commission, creating a deep hole for ECM bankers to crawl out of.
In January the number of deals fell 85% and proceeds fell 97% from US$9.8bn in January 2018, which was easily the best month of last year. The next best was May, when 20 US deals notched US$6.2bn in proceeds.
“If you were to project out current deals in the market on the road and planning to come, the stats at end of May will tell a different story in terms of year-over-year comparison,” said another ECM banker. “It could be in-line if not better than last year.”
The proceeds tally from Uber will help, but the flow of deals picked up in the second half of March and it’s been a steady flow since then, he said.
“STRONG UNDERLYING BID”
A turnaround in ECM fees would be welcome news for banks, after it dragged down investment banking divisions in the first quarter.
“There’s been no lasting damage done from the earlier part of the year,” said a capital markets attorney representing banks on IPOs. “There was a bit of time when some didn’t get out earlier this year, but they all got done.”
There’s been a continual flow of deals that are filing, starting and pricing, the attorney said. “I don’t see a slowdown unless something macro happens, and I think there will be a lot of deals in the second half of the year.”
Uber priced near the low end of its range, during a week when the VIX rose back to 20. It also followed a weak offering from rival Lyft, which now trades below its offering price. But the cautious open for Uber probably will not dampen a hot IPO market said the first banker.
“There’s a strong underlying bid to the market. A number of the deals are in very good shape,” the banker said.