- Recent public-debut disappointments and the 2020 presidential election could lead firms to delay their initial public offerings until the second half of 2020, according to Previn Waas, leader of Deloitte’s IPO Center of Excellence.
- As investors prioritize companies’ bottom lines over growth at all costs, the time to IPO has “definitely lengthened” as firms wait to prove profitability, Waas says.
- Many companies looking to go public are also viewing June as the last opportunity to do so before European holiday and presidential campaigns affect market volatility, according to Waas.
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A mix of recent public-debut slumps and the looming presidential election could lead firms to delay their initial public offerings, according to Pravin Waas, leader of Deloitte’s IPO Center of Excellence.
An IPO’s success can be partially attributed to how well its planners played the market. If you go public when investors are clamoring for promising startups, you’re more likely to be rewarded by an environment rife with relatively cheap capital.
However, major 2019 IPOs like Uber, Peloton, and Lyft failed to wow investors when they made their trading debuts. Traders balked at their lofty valuations and yearly losses. Other high-value companies like WeWork and Endeavor were days away from their IPOs before market woes and analyst scrutiny led them to cancel the offerings.
The companies boasting meteoric growth over profitability are “taking some time to evaluate whether 2020 is the year for them” to go public, Waas said in an interview with Business Insider.
The demand for rapidly-expanding tech startups has dwindled, and the time to IPO has “definitely lengthened” as firms wait to boost their bottom line before entering public markets, he added.
Even profitable businesses are poised to delay their IPOs until uncertainty dies down. The 2020 presidential election threatens to make public markets more volatile, and firms trying to best time their IPOs will want to steer clear of the election’s wake, according to Waas.
“The companies that we’re talking to, they want to get out by June,” Waas said. “July is the European holiday, and August-to-October is too close to November and the election.”
He added: “The political climate certainly has an impact and they’re certainly trying to time that.”
Nick Giovanni — the co-head of Goldman Sachs’s global technology, media, and telecom group — echoed the statement in an interview with Business Insider. The managing director said that some of the proposals put forth by Democratic candidates could bring a massive policy swing, should they replace President Trump in the White House.
“The potential outcome of this election might be more extreme than previous elections as it relates to economic policy,” Giovanni said.
The role of direct listings
Direct listings are also set to steal some of the IPO spotlight in the new year, with Airbnb on track to deliver one of 2020s biggest debuts through such the process. The method allows for firms to trade shares on public markets without offering new stock, opening the door for early investors to sell their stakes without raising new funds for the company.
A high-profile startup like Airbnb following Slack and Spotify’s direct listings could make the practice more popular in the new year. However, firms that are unsure whether the method is right for them shouldn’t explore it unless they are willing to push their public debut down the road, Waas said.
“If you don’t have a point of view on a direct listing before your first meeting about going public, you’re probably in trouble,” he added.
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