Corporate Financing Analysis - The US Near-Term IPO Rush - 22 JAN 2018

The US IPO arena has rapidly exited the blocks in 2018 and by the end of the month may well have three USD1bn+ IPOs completed and publicly listed. After a bumper year for activity last year on the back of US equity capital market (ecm) valuations rallying to record highs, this year is poised to struggle in comparison. After all, a 50% increase in deal volume of floats to 160 deals and with proceeds of floats nearly doubling from USD18.8bn in 2016 to USD35.6bn a year later ( Renaissance Capital data shows), 2017 was always going to be a hard act to follow. But for now, the bullish momentum which ran throughout the course of last year appears to be spilling over into 2018 with the week of January 8 2018 seeing as many as three billion-dollar deals line up to go public in the US. The trio of proposed deals include private equity-backed security services firm ADT (which is hoping to raise USD2.0bn from ecm investors and come to market with a USD14bn valuation), Pagseguro (the Brazilian Paypal is hoping to raise USD1.7bn and carries a valuation of USD5.8bn) and cloud storage giant Dropbox, which also confidentially filed to go public using the secrecy of the JOBS Act. In a deal which has long been talked about ( see ' Tech IPOs Offer Hope For US IPO Arena ' , August 31 2016), the cloud storage giant is looking to go public with a USD10bn valuation, but the size of the float remains unknown, although we are expecting it to be sizeable.

Back For Now, But Not For Good
US IPO Activity By Deal Value, USDbn

Zooming in on the potential ADT deal, we highlight that the IPO represents yet another exit via the ecm area for Apollo Global Management, a firm with a good recent track record in the listings arena. The deal on the New York Stock Exchange (NYSE) stands to be a very quick turnaround for the buyout firm, which only acquired ADT as recently as in 2016 for around USD12bn and has since merged it with Protection One and ASG. We note that Apollo has brought three successful offering to market over the past couple of years - including insurer Athene Holding, coal producer Warrior Met Coal, and IT solutions firm Presidio - all of which are, as of the time of writing, trading at a minimum of 28% above their offering price. With ADT, Apollo is planning to offer 111.1mn shares with an indicative price range of USD17 to USD19.

Renaissance Capital data shows that the average US IPO returned 21% in 2017 which is marginally above historical levels. In 2018 to-date, US equities are continuing to fly - a backdrop that the trio of firms going public will no-doubt be hoping to profit from. Bloomberg data correct to January 15 2018 shows that the benchmark S&P 500 index is at 24.95% above where it sat a year previously and has returned as much as 4.21% since the turn of the year. Despite the positivity, BMI's core view continues to be that the bull run cannot last ( see ' US IPO Market Continuing To Break New Records, But Downturn Awaits ' , November 15 2017). Record stock valuations, combined with the ongoing downtrend in potential real GDP growth, suggest that the long-term outlook for US stocks is as bearish as it has ever been. While we have less conviction with regard to US stocks in the near term, we believe that resource stocks represent a bright spot in terms of their risk-reward prospects. In short, US stocks are running on fumes, which is likely to be a factor encouraging firms hoping to list in bringing forward their timelines to do so before the window starts to shut. The rush is on and we may well see an uptick in floats over the coming weeks as a result.