With markets whipsawing from disaster to dynamite in the first part of 2016, the shaky ground has worried a lot of companies.
This instability had a gargantuan impact on the number of companies trying to raise money through the stock market.
The frequency of companies going public has dropped like a stone. With five months of 2016 behind us, the number of companies hitting the stock market is the lowest in over a decade.
“If you’re having a hard time remembering the last time you saw a big IPO cross the headlines, you’re not alone,” said a note from Bespoke Investment Group.
“There have been only $4.88 billion worth of IPOs in 2016 in 31 deals. That compares with $13.4 billion in IPOs at this time last year and a total of 173 IPOs in 2015.”
In fact, year to date, only 2008 and 2009 — the period around the financial crisis and Great Recession — had fewer IPOs.
That’s not all. Companies already listed on the market are not issuing stock to raise more capital through secondary stock offerings as much either. Despite secondary offerings looking stronger than IPOs (which isn’t too hard), there have been fewer of these efforts than in 2015.
“As shown below, there have been a total of $56.07 billion in secondary offerings so far this year, down from the $99.9 billion that had been issued YTD last year but still a much healthier level than IPO activity might indicate,” said Bespoke. “2016 is on pace to see a total of 484 deals price, down from 646 last year and a cycle peak of 739 back in 2013.”
Using the current year to date fundraising trends, Bespoke projects this year will see the second-fewest deals done in the stock market since 2005 with 488 secondary offerings and just 78 IPOs. While the trends may shift as the market becomes more stable, it appears that there will be much less equity issuance than in recent years.
So why is this happening?
Broadly speaking, companies want stable financial conditions when issuing stock through an IPO or a secondary offering. This allows for more favourable pricing and more investor interest, thus making the offering a larger boon for the firm. So, the stock market’s violent drop to start the year was a terrible time for IPOs.
Additionally, firms considering going public during a period of market instability are more likely to wait and see what happens with other IPOs before they jump in. Basically, there can be a freeze while everyone waits to see what happens when the first firm jumps back into the market.
On the secondary issuers side, access to debt is simple and interest rates are low, so financing through the bond market as opposed to the stock market may make more sense.
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