The US IPO market is expected to bounce back next year
after a forgettable 2016, fuelled by a sunnier economic outlook and a bit more
certainty following the presidential election - factors that encouraged the
Federal Reserve to hike interest rates.
The Fed lifted interest rates by 25 basis points on
Wednesday, the second increase since the financial crisis.
It also signalled a faster pace of rate hikes in 2017 as
the Trump administration takes over with promises to boost growth through tax
cuts, spending and deregulation.
Public listings will also get a boost next year from
private equity firms looking to exit their investments, executives at both the
Nasdaq and the New York Stock Exchange told Reuters.
The star-studded potential pipeline of companies set to
make their debuts in 2017 includes messaging app Snapchat's parent Snap and
ride-hailing company Uber Technologies - both "decacorns", or
companies valued at tens of billions of dollars.
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"We are going to see more companies go public now
that we are through with the elections," said John Tuttle, the global head
of listings at NYSE.
"We have a clear picture of what the next four years
will look like from a regulatory and policy standpoint. And companies like
certainty."
IPOs in the United States in 2016 fell by more than a
third from 2015. A quarter of the 102 companies that made their debuts this
year are trading below their IPO price, according to Renaissance Capital, a
manager of IPO-focused exchange traded funds.
Joseph Brantuk, vice president and head of new listings
and IPOs for Nasdaq, said there were currently 96 active applications for
public listings in the United States in 2017. Of these, 53 could be listed on
the Nasdaq.
Heavy weights
The US IPO market in 2016 is on track for its worst year
since the financial crisis in 2009, when just 56 companies listed their shares.
Apart from uncertainty surrounding the US presidential
elections, investors this year were also sceptical of the Fed's rate hike path
mainly because policymakers signalled four raises but held back until their
last meeting of the year.
"Higher interest rates may induce some private
equity firms to take buyout-backed companies public," said Jay Ritter, an
IPO expert and a professor at the University of Florida.
Higher interest rates make debt more expensive than
equity as a funding source for companies to expand their business.
Also, several private equity firms are nearing their exit
period after holding on to their investments for five to six years.
Venice, California-based Snap could go public as soon as
March and is expected to be valued at $20-$25 billion.
Read also: Brait seeks London listing
A listing by the company, which is backed by Sequoia Capital
and T. Rowe Price, would be the largest US technology IPO since Facebook’s debut
in 2012 with a value of $81.2 billion.
Investors also widely expect Uber to file for an IPO in
2017. The company was valued at about $63 billion after its latest round of
funding in June.
A public debut by music streaming service Spotify, one of
Europe's most valuable tech start-ups, would be a boon for Europe where tech
firms tend to sell early, getting swallowed up by bigger fish in Silicon Valley
or China.
Based on active IPO applications, Brantuk said
technology, healthcare and financial sectors look the most active.
"We have never been busier."