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What is an IPO?
An initial public offering (IPO) represents the first time a company sells shares to the public, opening up the business from private ownership, and empowering new investors with the right to vote on future decisions. While most companies aim to bring on large institutional shareholders to form the foundations of its shareholder base, public companies tend to have thousands of different investors – big and small.
The main purpose of an IPO is to raise funds for the business in order to move forward. Businesses going public tend to expect high growth over the coming years, and require cash in order to carry out their strategy. Once completed, the public company becomes much more transparent as it is obliged to abide the rules and regulations of whatever stock exchange they have chosen to list on, requiring the firm to publish audited financial accounts and keep the market up to date with what’s happening with the business.
IPO momentum building - Snap led the stampede in 2017
Over 1600 IPOs were completed worldwide in 2017, rising 49% from the previous year and hitting the highest level seen since 2007. Proceeds raised by the newly listed companies amounted to about $190 billion, 40% higher than 2016.
US exchanges remained top of the leader board, after the number of IPOs rose by 55% compared with 2016, and proceeds climbed 84%, with 174 IPOs raising $39.5 billion. The number of London IPOs in the year rose by 63% to over 100 for the first time since 2014, raising £14.8 billion to hit a three-year high to eclipse its European counterparts.
Snap, the owner of social media platform Snapchat, was the headline IPO in the US after raising $3.4 billion. Although shares initially soared after listing in early March, the stock has traded below its IPO price since mid-July to make the stock one of the major disappointments of last year. The UK welcomed Europe’s largest IPO of 2017 after Allied Irish Banks opted to dual-list in London and raise £3 billion. The bank has seen its share price stay comfortably above its offer price since listing in July.
The IPO calendar for 2018 looks positive despite geopolitical uncertainty
EY, formerly Ernst & Young, believes the global outlook for IPOs in 2018 is bright, driven by lower market volatility, high company valuations and renewed appetite for cross-border IPOs – particularly in the US, London and one of the world’s other top IPO destinations, Hong Kong. Still, uncertainty from the likes of Brexit, upcoming European elections, a new tax regime in the US, and the expectation of higher interest rates will all play a part in how markets perform this year and beyond.
The IPO market in the US remains attractive, and the number of domestic and foreign companies considering an IPO is increasing. The technology and healthcare industries are expected to be key drivers of activity this year, and a number of big brands and high-profile stocks are expected to come to market.
In the UK, IPO activity is expected to be muted until activity picks up from the second quarter (Q2), according to EY, with weaker sterling set to continue making UK investments look attractive to international investors. However, the number of delayed or cancelled IPOs is also expected to rise this year and the largest ‘known unknown’, Brexit, will continue to overhang markets.
In 2018, we could finally see the world’s largest oil company, Saudi Aramco, complete the biggest ever IPO. Reports suggest the state-owned oil firm could look to raise $100 billion by floating 5% of the business to give it a valuation of $2 trillion – which would be more than double that of Apple, currently the most valuable public company in the world.
Most hyped IPOs that could materialise in 2018
Uber ($69 billion)
Uber CEO, Dara Khosrowshali, the former Experian boss who took over last year to help get the company back on track following a tumultuous time for the ride-hailing service provider, hinted early on that an IPO featured in his plans in 2018 or 2019. But the company is still dealing with increased regulatory pressure and a series of scandals. Backed by the likes of Japan’s Softbank, Uber operates in over 600 cities in 77 countries, completing ten million journeys per day – but it's still making eye-watering losses.
Lyft ($7.5 billion - $11.5 billion)
The controversy around its larger rival has led to increased attention on Lyft. It currently exclusively operates in the US, where it is Uber’s biggest competitor, and is thought to have taken about a quarter of the market. The company claims to cover about 94% of the US population, but is also still making vast losses. It is planning to expand out of the US.
AirBnB ($31 billion)
The middle man allowing people to rent out their properties could be one of the biggest and more certain IPOs after CEO, Brian Chesky, said last year that they would be ‘ready as absolutely soon as we can’. With three million listings in 65,000 cities, spanning 191 countries, AirBnB is another company trying to cope with its extraordinary growth – but it is reported to have remained profitable since the second half of 2016.
Spotify ($19 billion)
Spotify is the red herring of 2018. This was one of the big IPOs tipped for 2017, but more recent reports suggest the music streaming service is now aiming to be the first company to carry out a direct listing, which wouldn’t involve raising any new capital, in the first half of this year. That would come against a backdrop of a $1.6 billion lawsuit over a licensing dispute.
Pinterest ($12.5 billion)
Products are marketed on this ‘online pinboard’ with the aim of getting users to buy things they like the look of. This social media platform has 200 million users – 80% of whom use their mobile. The company’s three founding brothers still run the business and have made some high profile appointments from Twitter and Facebook. But this is one of the more likely ones to be pushed into 2019 or beyond.
DropBox ($10.5 billion)
The cloud-data operator has had to fend off increasing competition from big players like Alphabet’s Google and Amazon, but has 500 million users and 200,000 businesses signed up. Drew Houston, one of the founders, remains at the helm as CEO. And the other founder, Arash Ferdowsi, remains firmly involved. DropBox was another IPO expected last year, but 2018 may see it come to market.
O2 (£10 billion)
The UK telecoms firm is the only rumoured decacorn (a company with valuation of $10 billion or more) to potentially emerge in London this year, in addition to Saudi Aramco. It has 25 million customers, a 450-strong branch network, and owns half of Tesco Mobile. Although Telefonica, its Spanish owner, was looking to reduce debt, this is becoming less of an issue for the company. Still, reports state the IPO has been set back due to delays in a key radio spectrum auction that it wants to have in the bag before it comes to market.
Aston Martin (£5 billion)
Recently reported to be seeking a London IPO this year, the British sports car maker controlled by Investindustrial Advisors, is not thought to have made a firm decision and is considering other options – but an offer would be one of the biggest tests of investor sentiment for UK firms, ahead of Brexit next year. Its performance has stepped up after it delivered over 5000 vehicles in 2017 for the first time since the financial crash, and its new Vantage model sold out all of its capacity for 2018. It expects to beat guidance in 2017 for earnings of at least £180 million, from over £840 million of revenue.
GEMS Education ($4.5 billion - $5.0 billion)
The company has reportedly assigned advisers to carry out an IPO this year. The Dubai-based firm has invested over $1 billion in its portfolio of over 250 private schools located in 14 countries since 2014. GEMS completed a $1.25 billion refinancing last year to help support growth. Founder Sunny Varkey remains as chairman.
Ancestry.com ($2.6 billion - $3.0 billion)
After filing for its IPO in June last year, Ancestry is another IPO that has been delayed while it looks for a new CEO, after Tim Sullivan resigned and moved to the role of chairman. The genealogy website was previously listed on the NASDAQ after a $100 million IPO in 2009, before going private in a $1.6 billion deal three years later. With 2.7 million subscribers, and six million DNA customers, annual revenue is thought to have reached over $1 billion.
Zscaler ($2 billion)
A confidential filing was reportedly made last October to make this a more likely IPO this year. Founder Jay Chaudhry remains as CEO of the firm, which provides enterprise security for the cloud era. It has 2800 businesses signed up, 200 of which are included in the top 2000 public companies, according to the annual review conducted by Forbes.
Funding Circle (£1 billion - £2 billion)
One of the most widely anticipated IPOs in London in 2018, reports suggest the peer-to-peer marketplace lender will come to market in late autumn. The fintech firm is well respected, and its founders remain on the board. Out of the £1.7 billion lent last year, over £900 million went to 32,000 UK businesses, with the rest going to growing markets in the US and Continental Europe. Notably, the company has had an SME (small and medium-sized enterprises) income fund listed in London since 2015.
Apptus ($1.8 billion)
Having reportedly hired Goldman Sachs to explore an IPO late last year, the company’s ‘quote-to-cash’ software that helps businesses manage and personalise sales contracts is built on Salesforce, the secure platform used by app developers. Founder, Kirk Krappe, is the CEO and chairman, and the company is backed by a major sovereign wealth fund and large firms from the Middle East.
Vue Cinemas (£1.7 billion)
With over 200 cinemas in ten countries – 87 of which are in the UK and Ireland – Vue has been thought to be lining up an IPO since poaching ITV CEO, Adam Crozier, as non-executive chairman last year, partly for his public company experience. But rumours have been circulating as far back as 2015, and the recent $3.6 billion tie-up between competitors Cineworld and US-focused Regal Entertainment has changed the competitive environment for the company.
Sky Betting & Gaming (£1.5 billion)
Although ‘no decisions’ had been made as of late last year, London is hoping the online bookmaker – with brands like Sky Bet, Sky Vegas and Sky Casino – will IPO this year. The company has major backers, including CVC Capital Partners and Sky, which still has a 20% stake. It claims to have consistently outperformed the market over the past five years, and three-quarters of its two million customers use their mobile. It began expanding last year on the back of the popularity of the Sky television brand in Germany and Italy.
Zuora ($1 billion)
Another IPO that could happen after being tipped for 2017. The founder of the billing and forecasting software company, Tien Tzou, sits as CEO, and has recruited his team from the likes of Yahoo. The company is proud of its speedy new product innovation and has around 900 customers, with almost a third boasting annual revenues of over $100 million.
Acquia ($1 billion plus)
Acquia, which has cited IPO rumours on its own blog, provides software-as-a-service through its commercial open-source software that supports the Drupal platform used to make websites and apps. One of its founders, Dries Buytaert, is at the centre of the business as chairman and chief technology officer while Michael Sullivan, who left London-listed Micro Focus after overseeing the merger with Hewlett Packard last year, is CEO. It has 3500 customers and investors including Amazon.
OnTheMarket.com (£200 million - £250 million)
The company has confirmed its intention of carrying out an IPO to raise around £50 million, but the timetable is unclear. The firm was set up by a group of different estate agents to rival the two dominant property portals in the UK: Zoopla and Rightmove. This is a very likely IPO for 2018, as the company has agreements to list properties from three more estate agents that are contingent on coming to market.
Codemasters (£100 million)
After abandoning an IPO plan over a decade ago, this UK-based developer of video games and apps was reported late last year as preparing for an IPO ‘in the coming months’. India’s Reliance Big Entertainment is the majority shareholder, but the founders remain on the board. The company is behind the official Formula 1 games and has other recognisable titles, like Micro Machines, within its portfolio.
AppBox Media (unknown valuation)
Another UK-based video game and app developer that said early last year it was considering listing in London, or maybe even New York. Run by CEO Polat Hassan, the firm boasts 22 games, and said in 2017 it had contracts worth £15 million over a 24-month period.
SuperAwesome (£200 million)
Run by Irish entrepreneur Dylan Collins, the firm’s child-friendly technology is used by companies to access the more regulated market for younger audiences. Operating in the UK and US, it reaches over 500 million children under the age of 13 each month, with an impressive list of clients. However, talks of an IPO have died down since early 2017.
Chargemaster (£170 million)
With reports that a June IPO could be on the cards, Chargemaster has ambitious plans to grow its 6500 charging units for electric vehicles to 65,000 over the next four years. Founder and CEO, David Martell, started the traffic sensing and satnav firm, Trafficmaster, which was valued at £500 million and floated in 1994. Chargemaster has major backers including Swiss investment fund Helium and BMW, with revenue in 2017 thought to have doubled year-on-year to about £25 million.
Other possible London IPOs that could happen in 2018
Hybrid Air Vehicles is a UK airship manufacturer aiming to develop a blimp-like vessel with transportation, monitoring and military capabilities. But it suffered a setback last year when its Airlander crashed, casting doubt over any IPO.
The likelihood of halal foods specialist One Foods coming to market has dwindled since its owner, Brazilian meat firm BRF, came under fire for taking part in a scheme to bribe health officials. Reports have also suggested BRF may seek a private sale rather than the previously planned IPO.
Turkish discount retailer, Sok Marketler Ticaret, could be one of the big surprises for London with valuations estimated as high as $3 billion. While smaller Turkish firm, Simit Sarayi, which makes bagel-like bread named ‘simit’, could also float with a valuation of over $1 billion.