IFR held its US ECM Roundtable on September 13 as stock market indices were nearing historic highs. Investors were showing greater resolve to chase performance by participating in ECM transactions not only in the public markets but in private as well.
With all of the major US stock indices up on the year – Nasdaq up 17.4%, S&P 500 8.6%, and DJIA 5.8% – traditional IPO investors continued to look to private markets in order to outperform benchmarks.
The public interface saw 142 companies raise US$38.4bn through US-listed IPOs, the most since 2014 on a proceeds basis. Foreign listings, particularly from China, figured prominently in this year’s deal flow, and cannabis landed on US exchanges for the first time as an institutional-grade investment alternative.
Venture funding, by comparison, totalled US$41bn in the first half of the year, including 65 companies that raised more than US$100m, a record number.
Hastened by the proliferation of passive investment strategies, the lines between private and public equity have become more blurred.
Biotechnology companies have been particular beneficiaries of crossover investments that see traditional long-only funds participate in late-stage private rounds, IPOs, and in the aftermarket. Tech, fintech and high-growth consumer retail have also benefitted.
The pendulum will, at some point, shift towards the public markets, but has yet to do so, according to members of the roundtable.
Companies are choosing to stay private for longer because they want to, and they can.
Spotify Technology chose to transition to the public markets but did so unconventionally with a direct listing on the NYSE in April, providing immediate liquidity for all of its private backers and equal access for all new investors. No IPO discount, sellers and buyers found a market-clearing price, and residual insider overhang disappeared on day one.
The music streaming site’s direct listing was in some ways flawed, some members of the roundtable said. Others on the roundtable said, while that might be the case, private companies of a similar ilk have taken note of the benefits of direct listing.
And yet, despite the robust funding environment and manner of access, regulators bemoan the dearth of IPOs and are seeking remedies that would extend private market access to growing classes of investors. That access already exists, even if indirectly, by investing in crossover funds.
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