What is in store for the IPO market in 2018? If New York Stock Exchange’s (NYSE) start to the year is any indicator, we are in for an exciting ride. NYSE had its best start to the year since its founding 225 years ago – achieving, in January alone, 11 IPOs, $8.5B in proceeds, and 34 new exchange-traded funds (ETFs) totaling $4.2B in assets under management. What drove this strong start to the year? I recently sat down with Carolyn Saacke, NYSE’s Chief Operating Officer, Capital Markets, to get her take on current trends and the outlook for 2018.
Chris Clapp: NYSE had a record-setting start to its year. Can you talk about a few of the key factors driving the strong start?
Carolyn Saacke: There are a number of factors responsible for the exceptional start to 2018. The strength of the overall economy, a low CBOE Volatility Index (VIX), and pent up demand lingering from 2017 were all contributing forces. In addition, most of the transactions in January were quite large, and NYSE has proven itself as the venue for large and complicated transactions. There were several IPOs, including a few international deals, raising more than $1B – and many of the transactions were companies backed by private equity. NYSE has such a great track record with these types of transactions so the NYSE structure itself, coupled with a robust economy, really positioned us well for a highly successful start to the year.
Chris Clapp: Any trends in terms of the types of companies going public?
Carolyn Saacke: There are several trends emerging. NYSE has seen a lot of international transactions – including companies from Latin America, Europe, and China. For example, PagSeguro Digital listed in January and raised nearly $2.3B in proceeds. The Brazil-based company was the first tech IPO of the year and it will really bode well for the region. In terms of pipeline, China and Latin America are looking exceptionally strong right now in terms of potential IPOs in the near future.
Chris Clapp: Are there any industries you are particularly excited about?
Carolyn Saacke: We are expecting a lot out of enterprise technology this year, as well as an extensive amount of sponsor-backed activity across a number of industries to continue. Further, there have already been 10 special purpose acquisition companies (SPACs) listing in 2018, and activity is expected to continue in the sector, especially as more business combinations are announced.
Chris Clapp: Do you expect this strong listing activity to continue throughout 2018?
Carolyn Saacke: Absolutely. One of the advantages of working at an exchange is that we have insight into all of the confidential filings because we are speaking to so many companies. The pipeline right now is especially strong, and we will start seeing activity in earnest starting during the second half of March from a listings perspective.
Chris Clapp: Are you seeing any trends with private equity-backed companies?
Carolyn Saacke: The vast majority of IPOs this year have been sponsor-backed and we do expect that a large portion of IPOs will continue to be. Sponsors will always continue to evaluate M&A as an alternative to an IPO; however, the IPO continues to be a tremendous alternative when you believe in the strength of the company and its ability to grow value for an extended period of time.
Chris Clapp: Do you expect the recent tax reform to impact the IPO market?
Carolyn Saacke: We are seeing the impact of tax reform on the market in general. The market’s response has been strong and that will feed a robust IPO market. There was some volatility in early February that fortunately coincided with the natural lull in the IPO market due to stale financials. Based on the pipeline that we are seeing and the performance of companies during the most recent earnings cycle, we expect that the pipeline and IPO market will remain strong. As we speak, we are seeing many companies scheduling their listing day.
Chris Clapp: You regularly speak with many companies considering an IPO. For those that are waiting, what factors are holding them back?
Carolyn Saacke: There will always be companies holding off on an IPO – and in many instances that makes sense. For example, if your company is compared to peers that are not trading well, you may not get the valuation you are seeking even if, as a company, you are ready to go public. Many companies are looking for another fiscal year of growth to support their story. Conversely, we still see companies who try to ‘time the market.’ Albeit rare, it happens, and history has shown that many companies miss the boat. My advice to companies is always to focus on getting ready now so the company is ready to hit the market. Confidential filings are terrific in the sense that companies can file confidentially while, at the same time, evaluating a number of strategic alternatives or closing out another quarter of growth. It leaves you optionality to chart your path.
Chris Clapp: For companies starting to think about an IPO, is there one recommendation you’d give them?
Carolyn Saacke: It is never too early to start preparing for an IPO, and you can never be too prepared. Further, build your team. You can never start hiring people early enough. We frequently see companies that still have a lot of work to do in terms of building their finance & accounting team. Start early!
Chris Clapp: Lots of IPOs must keep you very busy – but it’s also likely a ton of fun. What do you enjoy most about working with a company on its IPO?
Carolyn Saacke: I have the greatest job on Wall Street because I get to take great companies public. The entire process is fun – from meeting the company in many instances several years before the IPO all the way through to the listing day at NYSE. The moment I absolutely love is when management rings the first trade bell at the NYSE because you can see the exhilaration and emotion on their faces. It is simply a feeling that cannot be beat.
Carolyn Saacke is Chief Operating Officer, Capital Markets at the NYSE (www.nyse.com), responsible for developing and maintaining the exchange’s relationships with the private equity, venture capital, and advisory communities, as well as overseeing key IPO transactions and the SPAC listings practice. Previously, Carolyn was an investment banker at Bear Stearns and Citigroup.