The IPO Buzz: Backstage Before 2016 Begins

There are no shortages of names of companies that could go public this year, but there are two things needed to make this magic happen: A friendly stock market and IPO leadership.

Both happened during the first part of 2015. The stock market got off to a good start and IPO leadership came from the health- care sector. Then the stock market lost its momentum and the IPO calendar dried up.

For this year, the 2016 stock market’s opening gong has yet to sound, but there is early talk of IPO leadership. The attention is focused on the unicorns, privately owned companies with valuations of $1 billion and up; more on this in a minute.

2015’s Roller-Coaster Ride

By May 21, 2015, the stock market, as measured by the S&P 500 Index, ran up to its all-time closing high of 2,130.82, UP 22.3 percent from its previous closing low of 1,741.89 on Feb. 3, 2014 – and then the air came out of its tires.

By Aug. 5, 2015, the S&P 500 hit its 2015 closing low of 1,867.61, DOWN 9.29 percent from its May 2015 high. That was almost a correction, which Wall Street defines as a sell-off of 10 percent or more from a previous closing high.

The 2015 IPO market reacted accordingly.

The IPO calendar keeps turning out deals even after the U.S. stock market tops out. After the stock market hits bottom, a few deals can still get done even though the IPO calendar has started drying up. There is a delayed reaction – and 2015 was no different. By the end of August, the calendar had priced 133 of the year’s 173 IPOs, according to the U.S. Securities and Exchange Commission filings. That was an average of 16.6 deals per month. From September through December, 40 IPOs were priced. That was an average of 10 deals per month, and in December, only two IPOs were priced.

Historical note: A classic example came in 2000 when the S&P 500 closed at its then all-time high of 1,527.46 on March 24, 2000. The March 2000 calendar turned out 64 IPOs and continued to generate deals as the market sold off with the S&P 500 closing on Dec. 31, 2000, at 1,320.28, DOWN 13.6 percent from its previous high. From April through December 2000, 294 IPOs were priced. That was an average of 32.7 deals per month, but in December 2000, only eight IPOs got priced.

Back to today: The S&P 500 has shown some signs of life. It closed on Dec. 31, 2015, at 2,043.94, UP 9.48 percent from its August low. Now we wait for the 2016 opening bell – and for the stock market to come to life and the IPO calendar to evolve.

Looking at Leaders

The other key to the IPO market is leadership.

Back in 1999-2000, leadership came from the insanity-dot-com IPOs. In 2015, health-care IPOs led the way.

Sixty-four of the 173 IPOs priced in 2015 were health-care deals, with 53 priced through August. That was an average of 6.6 health-care IPOs per month. After that, the health-care IPO traffic slowed and so did investors’ interest. From September through December, 11 health-care IPOs got priced. That was an average of 2.75 IPOs per month. But here is the real story. Eight of the 11 had to be cut in size to meet limited investor demand.

Starting in 2016, the leadership talk is all about the unicorns. The last few have done well in the aftermarket. They were Atlassian (TEAM), Match Group (MTCH) and Square (SQ).

Atlassian priced its IPO of 22 million shares at $21 each on Dec. 9, 2015. On Dec. 31, 2015, its IPO closed at $30.08, UP 43.2 percent from its IPO price.

Atlassian provides collaboration software for product development teams of all sizes to plan, build and launch products. More than 35,000 small and large users, including Citigroup, Coca-Cola, Deutsche Bank, eBay, LinkedIn, Netflix, Toyota and United Airlines, use the company’s products in tracking, collaboration and software-development projects to work smarter and deliver quality results on time.

Match Group priced its IPO of 33.3 million shares at $12 each on Nov. 18, 2015. On Dec. 31, 2015, its IPO closed at $13.55, UP 12.9 percent from its IPO price.

Match Group supplies online dating products and services. The company operates over 45 brands, including Match, OKCupid, Tinder, Meetic, Twoo, OurTime, BlackPeopleMeet and FriendScout24. Match Group offers dating products in 38 languages across more than 190 countries. It has about 59 million MAU (monthly active users) and about 4.7 million paid members.

Square priced its IPO of 27 million shares at $9 each on Nov. 18, 2015. On Dec. 31, 2015, its IPO closed at $13.03, UP 44.8 percent from its IPO price.

Square is a San Francisco-based provider of mobile payment solutions. Square lets anyone with a mobile device take a credit-card payment.

There was some controversy about Square’s pricing. The deal was priced at $9 per share, DOWN 21.9 percent from $15.46, the reported per-share price of its last round of fundraising. But hey, this is Wall Street. Nobody really cares about the previous owners.

It’s the current buyers who count. In Square’s case, the new shareholders see their investment up about 45 percent in the aftermarket.

There are no IPOs on tap for the first week of January 2016, but that is a seasonal factor – it is normal.

Stay tuned.

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