To put it mildly, 2020 has not been the banner year that many investors had hoped for.
Historic volatility and deep uncertain ties about where the economy is headed have derailed public offerings that were otherwise likely to happen his year. According to Renaissance Capital, there have been 41 U.S. IPOs year to date, a 30.5% drop compared to the same time period last year. Only 3 IPOs have been filed in April so far.
Don’t expect the pace to pick up much -- at least not for a few months, according to Rick Kline, co-chair of Goodwin’s capital markets practice.
“There’s mostly two buckets: One is companies that have first-order problems right now. Hospitality, travel-related, event-driven, those companies are really impacted by the pandemic,” Kline said. “The second bucket, let's say enterprise software companies, aren’t as directly impacted but worry about second-order effects where their customers may be impacted in the second quarter or beyond.”
It adds up to a lot of uncertainty, and the effects on pre-IPO tech firms are already apparent.
Airbnb, for example, has been hit unusually hard by the pandemic. Revenues from its vacation rental marketplace dissolved practically overnight as travel restrictions and lockdown orders spread across the globe. And its valuation was reportedly slashed to $18 billion as part of a recent $1 billion round of fundraising to keep the company afloat.
Other private firms that had hoped to go public this year, or were considering doing so, include DoorDash, Robinhood, Unity Technologies, Snowflake, GitLab and others.
Kline added that companies whose businesses have been hit hard by coronavirus “will need to show a few quarters of sustained growth” before going public. Others might be able to pull the IPO trigger in September or October at the earliest.
“For companies that facilitate remote work....and are still seeing growth or an uptick, the IPO window will open earlier,” he said.
A recent survey by Stifel, which included both tech executives and private market investors, showed that 65% plan to push off company exits originally planned for the first half of this year into 2021. Only 5% reported continuing exit plans along pre-existing timelines.
A range of enterprise software makers have reported surging usage in the current “stay at home” period, from videoconferencing tools such as Zoom (ZM) - Get Zoom Video Communications Inc. Report or collaboration platforms like Slack (WORK) - Get Slack Technologies, Inc. Class A Report and Microsoft (MSFT) - Get Microsoft Corporation Report Teams.
And private tech firms similarly getting a stay-at-home boost could parlay that into a successful IPO -- but not until later this year when there’s more “comfort around the investor base,” added Cole Bader, managing director of Stifel’s global technology group.
“There’s so much volatility in the public market, it’s affecting the private market,” Bader said.
Even if the IPO window is shut until the fall, that doesn’t mean dealmaking will grind to a halt: The Stifel survey also showed that a majority of tech executives are aiming for add-on acquisitions as the sector faces business disruption from the pandemic.
“There are some beaten up companies right now and some more desperate sellers, so for companies that have the capital, it’s a pretty interesting time to make acquisitions,” Bader said.