From Airbnb in the US to O2 in the UK, 2020 will see a fair number of companies join the stock market, but not all will choose the IPO route, some may select DPOs others SPACs.
IPOs and share launches in 2020
IPO, as you probably know, stands for initial public offering. It is defined as the process by which a private corporation offers shares to the public via a new stock issuance, at least that is how Investopedia defines it. By that definition, we are seeing more and more IPOs that are not strictly speaking IPOs at all.
Let me explain. An IPO is typically undertaken so that a company can raise money. Once the IPO has occurred, it becomes much harder to raise money, the only route available is a Rights Issue, but the markets don’t tend to like them, it smacks of desperation. I think that such a view is wrong and maybe that is partially why we are seeing more and more companies coming off the stock market to become privately owned.
There are, however, many other ways a private company can engage in fund raising, and these days, when the Silicon Valley ethos has been exported worldwide, many companies prefer to raise money while they are still private.
For such companies and their shareholders, the real benefit of a stock market listing is that it gives liquidity to shares, enabling early investors to cash out, for example.
A direct public offering or DPO might then become the preferred route, as applied by Slack last year and Spotify before that, for example. With a DPO, companies cut out the middleman, do away with expensive road shows and sell shares direct.
SPAC or special purpose acquisition company — is where a company buys a corporation that is already listed on the stock market but isn’t trading. I guess another similar route might be when a private company reverses into a smaller listed company, gaining a stock market listing.
Given that it is much easier for a private company to raise money than it used to be, I am tempted to conclude that a DPO might create better value than an IPO. Unfortunately, shares in Slack are currently below the DPO price, although Spotify shares are up modestly since DPO.
The investment banking industry itself doesn’t like DPOs or SPACs, claiming that companies that secure listings this way are subject to less scrutiny. I am not so sure, after-all, the investment banks do have vested interests in criticising alternative ways of securing a stock market listing.
I suspect that 2020 will see many DPOs.
Take Airbnb, for example. This company is already well financed, and given the massive size of its user base, hardly needs investment banks to publicise it. The Airbnb IPO, (or is that Airbnb DPO?) might be the biggest new stock market listing of 2020.
Also, watch out for Chinese companies Ant Financial — an Alibaba affiliate — the largest Fintech in the world and Didi Chuxing, a kind of Chinese Uber. As I have argued before, the truly interesting thing about these car/taxi booking services relates to how the market will develop when we have autonomous cars. I suspect that China, with its different regulatory approach, might be first to plunge into autonomous cars and Didi could clean-up.
WeWork was of course one of the most talked about stock market listings of 2019 and it didn’t happen. The CEO/co-founder, Adam Neumann, had something of a falling out with the press and markets and was pushed out with a flea in his ear and $1.7bn in the bank. I happen to think there is an opportunity with this one. The WeWork product is good, has played a key role in creating this start-up culture we keep hearing about and negative sentiment may create a business that is undervalued come IPO or DPO.
Other US companies to watch are Palantir, a big data analytics company headed by controversial entrepreneur and investor Peter Thiel. The co-founder of PayPal knows tech business like very few people do and data is becoming very big business.
Also in the US, 2020 should see mattress company Casper, cloud warehousing company Snowflake, on demand delivery company Postmates and online brokerage Robinhood see stock market listings.
I don’t expect any new fangled DPOs or SPACs from high profile UK companies that join the stock market this year, instead it will be traditional IPOs.
The O2 IPO might be the most discussed listing of the year. The company, under the name of Cellnet, was once owned by BT, now it’s part of Spain’s Telefonica Group. The only real surprise with this float relates to why it has taken so long — it was scheduled for last year but the O2 IPO was delayed by Brexit.
On a similar scale to O2, 2020 should see the IPO of Dangote Cement, the Nigerian cement company.
Two more well known companies expected to join the stock market this year are Asda and Deliveroo. Asda will retain links to Walmart, giving it access to the US company’s massive buying power, but how will its shares cope in the era when Lidl and ALDI seem to be on a one way march to dominance?
As for Deliveroo, being a country boy I have never used its service, but it’s certainly in vogue and I have seen its bikes and stressed looking riders enough times in London.
Another high profile company expected to join the stock market is McLaren, the Formula One company with a fancy car for very wealthy drivers. I wonder if the IPO will do as well as the Aston Martin IPO — in other words, will its share price fall as quickly as its cars move off the starting grid?
Also on the cards for this year is a Jaguar Land Rover IPO — much depends on how successful the company can be at embracing electric cars. I would also say don’t invest in any car company that isn’t investing heavily in AI.
Vue International is also heading for the stock market. I like both the movie and cinema business therefore I would say Vue has potential.
Finally, there is SDIC Power. The Chinese energy company is looking at a London IPO to raise money to invest in clean energy. Anything that is into clean energy is at least worth looking at, although there is a risk of too much hype in the green energy business.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees