Investor appetite for high-growth IPOs to be tested
Eight new listings planned for week ahead as unicorns stampede
The US listings market is poised for a busy week with deals that will test investors’ appetite for high-growth — but lossmaking — companies.
Eight new listings are scheduled for this week, the most since October of 2016, Dealogic said, although this number includes Verona Pharma, which is already listed in London.
The number of IPOs will put it on a par with the week of April 10 as the busiest capital raising week of the year, and compares with an average of three deals a week in 2017 so far.
Among the IPOs set to price this week is Cloudera, a big data company, aiming to raise as much as $210m in a deal that would value it up to $1.8bn. In its fiscal year to January 2017, revenue rose 57 per cent to $261m but the company produced a net loss of $187m. At the proposed price range, Cloudera’s listing would give it a valuation well below its last private capital raising round three years ago, which topped $4bn.
Cloudera is one of the so-called unicorns, having achieved a valuation of $1bn or more without tapping the public markets.
The herd of unicorns has grown in recent years on a vibrant market for private funding thanks to flows of capital from mutual and hedge funds that have joined traditional venture capitalist as investors in unlisted companies.
Other offerings expected in the week ahead include Carvana, an online marketplace for used cars, Chinese microlender China Rapid Finance, and Floor & Decor Holdings, a retailer of floor coverings.
Successful listings such as those by Snap and Mulesoft — a software company that traded at $22 a share last week against its issue price of $17 — are also fuelling demand for new deals.
“2017 is testing whether growth is back and investors are OK with losses,” said Matthew Kennedy, an analyst at Renaissance Capital, which runs exchange traded funds that focus on IPOs.
“In 2013 and 2014 investors were willing to fund growth at all cost and then in 2015 and 2016 they pulled back and said ‘we want profitability’.”
The second quarter is a busy time of the year for public listings and some bankers and market observers suspect companies held back their offerings pending the high-profile listing of Snap, the owner of the Snapchat App.
Listed in early March, Snap was the largest US IPO since Alibaba, the Chinese ecommerce group, in 2014. Snap has a market capitalisation of $25bn versus $19.7bn at the time of its IPO.
Some investors say there is pent up demand given the dearth of recent offerings. Last year, for example, was the slowest for the US initial public offerings since the aftermath of the financial crisis in 2009, according to Dealogic.
“When the ducks are quacking, Wall Street likes to feed them,” said James Callinan, a portfolio manager at Osterweis Capital Management. “We haven’t had a big wave of new public companies.”