IPOs Collapse, “Worst Year Since 2009,” Worst Dec. since 2008

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Party over: “Pent-up supply” in a world with no demand.

“We all thought that we might finally get a year where we would be able to put four quarters together,” UBS global head of equity capital markets Sam Kendall told Reuters. “If you looked at the pipeline and how people were thinking about the world, it just felt good. And then the wheels came off.”

The two measly IPOs in the US in December brought the total for the year to 170, down 38% from 2014, according to Renaissance Capital. By that measure, it was the worst year since 2012.

In terms of dollars, only $28.7 billion in IPOs were booked in the US in 2015, down 48% from 2014, and by that measure, according to Thomson Reuters, “their worst year since 2009.”

Numerous IPOs were pulled or shelved this fall due to “turbulent markets,” as it’s called. They included some LBO queens, owned by private equity firms, such as supermarket Albertson and Texas-based luxury retailer Neiman Marcus that had gotten hit by oil bust contagion [read… Retail Sales in Texas Plunge].

A number of IPOs were pushed through by lowering their IPO prices, like the erstwhile hero of the year, payments systems provider First Data, another LBO queen that KKR acquired in 2007. Initially, the IPO price range was $18 to $20. But there wasn’t enough appetite. So the IPO price was lowered to $16. That was in mid-October. On Monday, it closed at $15.60.

“We expected a big IPO class emanating from 2007 and 2008 private equity investments, some of which represented the last investments in people’s funds, and they ended up not pricing in the second half,” explained Credit Suisse global head of equity capital markets, David Hermer.

But he hasn’t given up hope. There’s always next year. “There is a tremendous backlog of IPOs, so we expect a big year in the U.S. market,” he said. And he threw in the magic words: “pent-up supply.”

There sure is a lot of it. In addition to the mega-LBO queens that PE firms are trying to dump, there are the startups. The Wall Street Journal now counts 84 VC-funded startup companies in the US alone that have a “valuation” of $1 billion or more. Eight of them have a valuation of $10 billion or more.

Just those 84 companies have a combined valuation of about $300 billion. How are they, plus the innumerable startups with valuations of less than $1 billion, plus the big LBO-queens the PE firms are trying to get rid of – how are they all going to go public next year when this year, only $28.7 billion in IPOs made it across the line?

No one knows. But that’s what is now called “pent-up supply.” In a world with no pent-up demand, or any kind of demand, much of this “pent-up supply” might remain pent up for a long time. And many companies will never make it over the line.

For them, the mythical “IPO window” had closed. For the IPO window to open, there must be smooth high-flying markets where gullible enthusiastic investors buy into any story, brush off big losses, ignore high cash-burn rates, and swallow hook, line, and sinker the alternative financial and operational metrics proffered by management and Wall Street.

And the moment this IPO window closed, according to Reuters, was last summer:

The strong run of deals at the beginning of the year was blown off course during the summer, as concerns over a slowdown in China and uncertainty around a looming U.S. rate rise increased volatility to levels not seen since 2011, at the height of the European debt crisis.

In fact, that window wasn’t all that wide open to begin with for much of the year, but this summer investors felt the cold draft and closed it some more. So the number of IPOs in the fourth quarter plunged 53% year-over-year. And in December it collapsed 86% to just two IPOs, the worst December since 2008, when there were zero IPOs!

The IPOs that actually made it over the line didn’t fare well, on average. The Renaissance Capital IPO index swooned 10% year-to-date. Not exactly a big reason for investors to get overly excited about buying what PE and VC firms are trying to unload.

The apartment sector of the magnificent commercial property bubble in the US is struggling with an identity crisis, and industry gurus have now declared a “plateau.” But after the last time they’d declared a “plateau,” the market crashed. Read…  Bone-Chilling “Plateau” in Apartment Boom Resurfaces, Smartest Money Bails Out

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  8 comments for “IPOs Collapse, “Worst Year Since 2009,” Worst Dec. since 2008

  1. MC
    December 22, 2015 at 6:39 am

    I suspect at least a part of those IPO’s will be forced through one way or the other, for the very simple reason there’s demand for one thing: “reasonably priced” stocks that have some hope of going higher.
    Stock markets around the world are presently prey to that phenomenon known as “narrowing”, meaning a small group of stocks such as the now infamous FANG (Facebook, Amazon, Netflix and Google/Alphabet) is pretty much pulling up whole indexes while the rest of stocks languish or decline.
    We’ve seen a number of buying frenzies already this year, as the value of some stocks (XOM and AAPL for example) hit the buy floor, but the problem is values were driven up so rapidly by desperate investors the party didn’t last long. Many cashed in their chips and latecomers simply walked away once the “buy now” window of opportunity closed.

    Stock markets need those IPO’s because, plainly put, they have nowhere else to go. “Narrow” stocks are becoming too expensive (see Netflix: from $48 to $116 in a single year) and the rest may swoon but not only often fails to reach the buy floor but often has limited growth potential as well.
    There’s also the question of all those LBO’s we’ve seen in the past six-seven years. Private equities are just itching to get rid of them and may just bite the bullet and settle for low enough IPO values so that somebody else will take them off their hands, hoping to make a profit down the road. Call it the greater fool game: many of these LBO’s are ticking time bombs at best and toxic waste dumping grounds at worst. They have been saddled with so much debt and often stripped of so many assets as to present more of a liability than a potential investment.

    I often try to keep calm and not fall prey to extreme emotions, but earlier this year I had one of those “facepalm moments” I get when things get way out of hand.
    You may remember Jet.com, the new Internet shopping service that is marketed as an alternative (and possibly a threat) to Costco and Amazon Prime. A mere three weeks after launching, the company was already talking about what even Fortune magazine called a “unicorn IPO”: at least $2 billion. A week later this morphed into $3 billion.
    Jet.com’s business model is built around selling at cost or even at a loss and making money on subscriptions. By contrast Amazon at least makes a minuscule profit (an average 0.84% across the board) and makes money on Marketplace fees and Prime subscriptions.
    By Jet.com’s own admission (so assuming everything goes smoothly), they would break even in 2020 and start turning a (small) profit in 2021.
    By modern standards these are inordinately long times, and they mean Jet.com would simply devour investors’ cash for at very least five years, assuming everything goes according to plans and Amazon and Costco don’t declare war on it.
    Yet the company, which at least displays some measure of honesty by openly telling potential investors where and when they expect to make money, felt the need to start talking a monster IPO less than a month after going online.
    Which became even more of a monster after in October Jet.com dropped the membership requirement, meaning its (advertised) sole source of profit.
    After in November the Wall Street Journal warned potential investors the company faces a cash crunch due to “heavy spending of marketing”, any news about an IPO disappeared.
    Sic transit gloria mundi?

  2. Petunia
    December 22, 2015 at 9:01 am

    Mark Zuckerberg of facebook recently announced he was setting aside his fb stock to do good around the world. The vehicle he used to hold his stock is an LLC, basically a hedge fund, not a charitable trust. In a trust he would have to disclose his holdings and disbursements. In a hedge fund he could unload the entire thing with no one knowing. I’ll give him the benefit of the doubt because we all know he is a good person, but it doesn’t look too good.

    • December 22, 2015 at 6:08 pm

      When did we all know Zuckerberg is a ‘good person’?

  3. Keith
    December 22, 2015 at 10:00 am

    In our wonderful new, supply side, trickle down world we have taken our eye off the global consumer.

    How is the global consumer these days?

    1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

    2) Japanese consumers have been living in a stagnant economy for decades.

    3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

    4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

    5) South American and African consumers are busy struggling with economies that are disintegrating fast.

    Oh dear, no wonder there is no demand.

  4. Spencer
    December 22, 2015 at 10:05 am

    Send them to the Shark Tank for re-evaluation to purchase. That should fix this thing called the American Dream.

  5. michael
    December 22, 2015 at 2:35 pm

    I will personally enjoy it when these scams have failed.

  6. Aileen Lee
    December 27, 2015 at 10:14 am

    I blame Aileen Lee, the Venture Capitalist, for much of this trouble. She invented the term of Unicorn and that started a race of ridiculous funding whereby you were not a real company unless you were a Unicorn. So every startup gave Venture Capitalists any terms they wanted in order to get Unicorn status even if most of them are fake unicorns with contract terms so bad that they founders wont ever see a dime.

    Your fault Aileen. You take the credit then you have to take the blame too.

  7. adam silber
    January 1, 2016 at 7:52 pm

    The Neiman Marcus IPO was as bad the the Hindenburg. The public was spared great financial loses

Comments are closed.