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Equity capital market trends year-end reflection: Part II

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

For the second time in 17 years, global investment banking fees topped USD$100 billion. While that's great, there's more to this picture.

To understand why 2017 was a banner year for global investment fees, I recently interviewed United States International Financing Review Editor Stephen Lacey and Associate Editor of IFR Anthony Hughes. We recorded out conversation in a one-hour webcast and shared some of our previous insights in an earlier post.

Here are our observations that constitute the highlights of our second part of the webcast conversation:

What’s your Amazon strategy?

One major initial public offering (IPO) market trend is not obvious from the figures: the Amazon effect on IPO stories. The “everything store” that covers technology, consumer and, recently even healthcare, has become a major investor concern and features in most offer docs.

The really successful consumer IPOs of the year were those that could demonstrate they are if not Amazon-proof, at least Amazon-resistant. Floor and Décor and National Vision, being two notable winners from articulating such a convincing case.

IPO anti-climax?

With many tech IPOs, stock rocketed upward in the first few weeks before subsequently disappointing. Snap, GoPro, Fitbit are three companies, to name but a few, that exhibited this trend. The whole IPO process builds huge expectations and it is incumbent on companies to hit their numbers for the first few quarters at least, but the reality is valuations can sometimes be unrealistic.

U.S.-listed Initial Public Offerings
U.S.-listed Initial Public Offerings.

A decent performance overall

But don’t get too hung up on a few failures. The average IPO was up 26 percent this year. Half of all IPOs rose 10 percent or more, with a dozen rising more than 100 percent. Only a fifth lost 10 percent or more of their initial value.

In terms of overall stock market performance, while the Standard & Poor’s index might have surged, the Russell 2000 (a better proxy given IPOs tend to be smaller) is up just 8 percent.

However, sometimes it’s the little things that irritate. The prominence of “low floats” prompted a lot of criticism in the market, given the volatility associated with that practice. One notable example, Blue Apron, now has half its shares sold short.

A big year for non-U.S. listings

Non-U.S. listings were up 74 percent year-on-year to around USD$8 billion, driven by a wave of interest from Asia, particularly China, although banks don’t necessarily see this wave as a permanent phenomenon.

The huge Alibaba IPO of 2014 set expectations high, but overall the China story has disappointed.

Non-U.S. companies listing on U.S. exchanges
Non-U.S. companies listing on U.S. exchanges

A note on South America

Sometimes, a single listing can tell a broader story. The flotation of cement-manufacturing company Loma Negra in October is an example of a company that has benefited from reforms in Argentina, where the economy is showing signs of stability. Loma Negra provides an interesting way to access that story and gives further evidence of that market continuing to open up.

SPACs are back

Not only are special-purpose acquisition (SPAC) vehicles back from their 2007 short-lived spike, but they are structurally superior models to what we saw prior to the crisis, according to Lacey, who provides a technical analysis on the webcast. A bull-market product? Maybe, but the private equity majors are piling in, and you wouldn’t call that dumb money.


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