Last year was a dismal one for initial public offerings in the United States. The total amount of money raised hit a 13-year low. But now that the U.S. elections are over, there may be a big comeback in the new year.
The number of deals and the money raised dropped by more than 35 percent year-over-year in 2016, according to a report by Renaissance Capital, an IPO advisory firm. There were only 105 IPO deals in the United States, the lowest number since 2009. Companies raised $18.8 billion, the lowest level since 2003.
Although the year ended on a good note, 2016 did have many ups and downs. As a result, many companies kept postponing their IPO plans because of high volatility.
First it was a sell-off in Chinese markets in the first quarter of 2016. Then it was Brexit in the summer, and the U.S. elections in the fall.
However, volatility is not the only reason for the sluggish IPO markets. At the end of the day, it comes down to price.
“The primary reason for the lack of tech IPOs is the public-private disconnect on valuation,” stated the Renaissance report. The companies want too much money for their shares, more than investors want to pay.
However, the venture capitalists behind the tech companies could help bridge the difference.
“The private backers may grow impatient as some of them have been funding [these companies] for six or seven years and they want an exit,” said Cory Murphy, a research analyst at Renaissance Capital.
And over time, the companies also can grow fast enough to justify their high valuations, he said.
Snapchat Could Be First
Snapchat plans to go public early this year. The company was valued at $20 billion during its last round of private funding in May 2016. It now targets a valuation in the $20 billion to $25 billion range in public markets.
