For those who haven’t noticed, 2016 has been the slowest year for U.S. IPOs since 2009. So far this year only 55 companies have gone public compared with 121 in the same period last year and 180 in 2014, according to Dealogic.
Mergers and acquisitions (M&A) are down 25% year-to-date, not nearly as much as IPOs.
Behind The Disparity
The Wall Street Journal suggests that one reason sales are outpacing IPOs is because private-equity firms are attempting to get out from under older investments.
Meanwhile, corporations have lots of cash and, thanks to low interest rates, the cost of funding M&A deals is low enough to keep many projects in the pipeline.
Nonetheless, although IPOs are considered among the riskier investments, they do present an opportunity to beat market benchmarks due to potential growth.
Currently IPOs are up 16.7% on average. The S&P 500 has gained only 6.3%. This seems to indicate investors have shown aggressive interest in the small number of new listings that have entered the public arena.
Biggest IPOs Ever
From an historical perspective, an IPO can be monumental in scope. Such was the case with Alibaba Group Holding Ltd. (NYSE:BABAC), which went public in 2014 to the tune of $21.8 billion. Following options exercised by underwriters the total went to $25 billion.
Debit and credit card processor, Visa Inc. (NYSE:VD) had its IPO in 2008 and raised $17.864 billion. Keep in mind this was during the financial crisis. Still, Visa is the largest IPO for any U.S.‑based company.
Largest M&A Deals
As witnessed with Alibaba, an IPO can involve a single company going from zero to billions in a few days. Mergers and acquisitions are another animal all together. They sometimes involve bringing two existing companies under one roof. As a result, the amount of money involved can be massive.
The biggest M&A deal in history combined UK-based Vodafone AirTouch PLC with Germany's Mannesmann in 2000. That deal was worth $180.95 billion and so huge a majority of German citizens worried it would spell the end for German businesses.
In 2015 Verizon Communications Inc. (NYSE:VZC) acquired AOL for $4.4 billion. Just last week Verizon acquired Yahoo! Inc. Stock not found YHOO for $4.83 billion amid speculation the telecommunications giant was doing a deep dive into the content business.
The outlook for the rest of 2016 when it comes to IPOs still depends on the stock market, interest rates and the global economy. Potential 2H16 unannounced candidates for an IPO, according to Zacks, include South Korean hotel chain Hotel Lotte, music streaming service Spotify and Jose Cuervo.
With regard to M&A activity, IBM (NYSE:IBMC) is being rumored to acquire point-of-sale company, Revel Systems, several prominent private equity firms are rumored to be trying to acquire software assets of Hewlett Packard Enterprise Co. and none other than General Mills Inc. (NYSE:GISC) continues to play down rumors that it is seeking another major acquisition in the near future.