Swelling US IPO backlog could lead to crowded 2020 field

MORE and more companies are putting plans for US initial public offerings (IPOs) on ice this year because of investor pushback against their valuations, creating a backlog that could make stock market debuts more challenging in 2020.

While 2019 had promised to be a bumper year for IPOs, investor sentiment quickly soured. Shares of high-profile startups such as Uber Technologies Inc and Lyft Inc languished in the months following their listings, culminating in office-sharing startup WeWork cancelling its IPO in September.

This has led to companies’ postponing listing plans. Some 44 companies withdrew their IPO registration in 2019 as of Dec 3, up almost 50% from 2018 and the highest level since 2016, according to IPO research firm Renaissance Capital.

Proceeds from new US listings in 2019 through to November are down 7% year-on-year, according to Refinitiv data. Last month was the third-slowest November for US IPOs in the last 10 years.

Online mattress retailer Casper, clothing company Madewell, cybersecurity firm McAfee and Reynolds Consumer Products are among a growing number of companies putting plans for a US stock market debut on hold, according to people familiar with the matter.

Casper, McAfee, Reynolds and J. Crew Group Inc, which owns Madewell, declined to comment.

Companies eyeing a 2020 listing will have to grapple not just with a busy runway but with potential market volatility fuelled by the heated political rhetoric of the US presidential election.

“Everybody is assuming a lot of unpredictability because of the elections next year, so there is likely to be a much bigger chilling effect than anything that has happened with companies until this point with valuations or performance,” said Kenneth Guernsey, a capital markets partner at law firm Cooley LLP.

A stock market rally that has pushed corporate valuations to historic highs should have supported many of these IPOs this year. However, the shares of many newly listed companies, which in many cases have yet to turn a profit, traded poorly, causing investors to fret that they overpaid in their IPOs.

“It’s very hard for normal investors to determine the actual value of these companies, because most of them don’t go public with profits,” said Barry Schwartz, chief investment officer at Baskin Wealth Management.

To be sure, some companies have indicated a willingness to press on with IPO plans, despite the challenging conditions, with the likes of payments platform Bill.com Holdings and XP Inc, Brazil’s largest digital broker, slated to complete public listings in New York next week.

But in the absence of easy access to public markets, some companies are debating whether to go back to private market investors for fresh funding, given that many venture capital and private equity investors are searching for deals.

“The private market is currently flushed with trillions of dollars of dry powder to continue funding private companies,” said Rashaun Williams, general partner of the All-Star Fund at Manhattan Venture Partners. – By Joshua Franklin and Anirban Sen, Reuters

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