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- 2018 was a record year for IPOs, but are records meant to be broken? David Ethridge, the US IPO Services Leader at PwC joins me to break down what to expect from IPOs in 2019. David, what can we expect?- So I think, coming into '19, setting aside other external factors for a moment, the expectation of the market was we'd have leadership from two sectors. One would be pharma life sciences, or PLS, and the other would be tech, media, telecom, or TMT. So, last year in 2018, biotech pharma life sciences was very, very active and was a leading sector. I mean, north of 70 IPOs and a lot of capital. Smaller companies on average, smaller capital races, but extremely active. The second-most was tech, around 50 IPOs. So, we had the expectation that, coming into 2019, those two sectors would lead again. One, pharma life science is a little less dependent on the base growth of the economy, more of a basis around the science in each of those individual companies, and you've got a specialized, very intelligent investor base that understands that and will invest, sort of notwithstanding what's happening in the economy, and then on the TACC side, we felt like there were a lot of potential must-owns, large companies that are likely to come public in 2019 that can go in any kind of market if they chose to, so, would not withstand the volatility if they believe they needed that sophistication in their balance sheet. They wanted to provide access to capital for their existing employees and sort of benefit from retention. With their employee base, we thought that would be another active sector.- There's a lot of excitement around IPOs in 2019. I mean, we've got Lyft, we've got Uber, we've got Slack, but I'm wondering what are some other less popular IPOs to watch.-I don't know if I'd call them less popular. I might say less known.- Okay, less known.- And I think that's been a trend for the last couple years where, on the technology side, the equation, you've had a very active B2B software IPO market. So, we've had the likes of a MuleSoft or an OCTA and Pluralsight, companies like that that the general investor hasn't heard of. They're very focused on sort of apps on their phone-type names, particularly in the media like yourselves, but they're missing a very active market that's beneath that. So I oftentimes get the question, hey, when are these unicorns gonna be coming public? And the truth of the matter is, they've been coming public for some time. So, I think we had nine in 2017, we had another 10 or 11 and that's U.S.-based unicorns coming public in the United States and that does not include in 2018, Spotify, which came by way of the direct listing, doesn't include Qualtrics, which was acquired by a large strategic on the eve of its IPO, so we've got some companies like that they either didn't go, but were right at the door, or did go through a non-traditional means in terms of accessing the market.- In 2018, there were over 200 IPOs. Can you explain why?- Yes, and so, it was a very unusual year, so when you look back over time, most years are gonna have a very active, wonderful IPO quarter, you're gonna have a very bad, ugly IPO quarter, and you're gonna kinda have two middling quarters that are just fine, and '17 sort of broke the rules. We didn't have a bad quarter. It was terrific and that rolled right into '18 and the first three quarters were just bang-on and people were cranking through deals, such that, through nine months of last year, we had basically exceeded every sector's achievements in 2017 on number of deals done and capital raise. There were a couple of exceptions, like energy and a couple of other areas like that, there were exceptions to the rule, so then we had that fourth quarter that was feeling terrible by the time we finally exited, and on December 31, but notwithstanding that, we still had deals done in the fourth quarter, they just happened to price per the range, they didn't trade as well, but add them all in, and you exceeded 200, which we'd only done I think three times in the last 10 years. So, my own view, any time we can do more than 175, that's fantastic, and if we can do more than 200, that's stupendous, and so last year was sorta stupendous. I look at this year and I say, can we do that again? I'm not certain we can.- So, there are 67 pharma and life sciences IPOs in 2018, and I'm wondering, what does that mean for IPOs in the healthcare sector this year?- That's a good question, and it's certainly one that we've all asked ourselves. We, being sort of practitioners in the market, which is, well, how many of these things can come public in any one year and how's the investment there? Is there gonna be enough supply? Because you do see moments in time where people work through a backlog, like in the private equity world, where you'd get through a quote-unquote class of investments, and then there may be a little bit of a sort of window where there's not as much activity, but in pharma life sciences, it seems like, if we have the demand side of the equation, we can provide the supply and what I think you were seeing is, in a terrific year like we've had in '17 and then leading into '18, is a willingness on the part of the investors to look through stage, look at the science of those companies, so whether it was phase three, two, one, or preclinical, a willingness to bring those companies to the public markets on the part of the bankers and the lawyers and others, and more importantly, a willingness on the side of the investors to actually invest in those companies. And oh, I should say also, and then the returns have been good. So, if you put all that together, that's sort of a cycle that we wanna see continue.- PwC thinks that biotech is gonna show continued strength in the US IPO market. Can you break that down for me?- Well, I mean, when we say that, we weren't thinking about shutdown, right?-Fair, fair.- We weren't thinking about something that would be self-inflicted, right? We were thinking around these other leadership sectors like pharma life sciences, we were thinking about technology, and we were asking ourselves, based on everything we're seeing happening behind the scenes, can that continue? And it felt like it could, as long as a few things were possible. One was, would we get earnings in the base economy, allowing the markets to sort of remain stable and calm, right? That's a necessary criterion to have a really good market. You gotta have a calm base market, such that investors are willing to sort of look away from their existing portfolios and talk to some new company you're bringing through the doors. So, that's one thing, we felt like that looked pretty good, coming into the year, maybe a little slower, but investors seemed to be okay with the expectations, and then, would the market be able to ignore certain things that they've been able to do for a while? Would they be able to ignore Brexit, would they be able to ignore interest rates that were slowly increasing, would they feel like the FED is at a point of neutrality? So, there are a lot of things that are sort of in the investor minds today that they've been able to sort of put to the side for the last 18 months, such that we had a really, really good market.- I'm glad that you brought up the government shutdown. Because we are over a month in now, and you know, there's no end in sight. Should companies that are planning to IPO be worried about this?- I think it's very much a function of where you sit in the pipeline, so if you're already through with your comments and you were a company that said, I'm gonna flip it into the light in the fourth quarter, and you chose not to go, then you're very much feeling a bit of stress right now, because you might've been anticipating going in January before the Feb 14th dropped dead on your financials going stale, and this could be a period of time that's disconcerting for you and your management team. I would say most companies, though, go into this process with a good feeling for their capital plan, where the IPO fits within that, and they're likely to be able to weather the storm on this kind of thing for some period of time. If you were not already in the light with your filing, then this is potentially also disruptive if you thought you were gonna flip it into the light in early January and go. If you were someone who was thinking about waiting until you already had your 2018 full-year financials, and dropping those into your filing, this may or may not be affecting your timeline, and I think a lot of these larger IPOs that people have been thinking about in the tech world, at other places, were probably more in that camp, such that this may not yet be that disruptive to their timelines.- Will the shutdown, or maybe even Brexit, affect the pricing of these companies?- Well, any time you have volatility in the market, the question will be, what does it do to the comparable companies you're being compared to? Hence the name comparable. And yes, that could cause disruptions and affect your valuation. I think for most companies, that's a very, very specific event and not something that's about the total market, so in 2016, we saw the effects of Brexit, when it was new for everyone and difficult to sort of gauge how it was gonna be, and it definitely disrupted the overall IPO market in terms of flow. I'd be hard pressed to say it affected any one company on valuation.- Kay, what surprised you the most about IPOs in 2018?- Well, on the nice side of the equation, we had some very large IPOs, so if you look at the top 10 IPOs for 2018, nine of the top 10 were north of a billion dollars. The prior year, in '17, which was as good as year as you're gonna get, there were only three that were a billion dollars or greater. So, I like that kinda chunkiness in the market, and we saw the median sides of a deal go up from in the 156 neighborhood to the high 180s, so a little more liquidity in those companies coming forth, but obviously, that's based on valuation and some other factors, how much the company wanna sell, but I like those kinda trends overall and notwithstanding that, we had a very active market in that sub-one billion category, which I think, again, a lot of people ignore the fact that it is very active and we saw companies from the SPAC world and pharma life sciences in that vein.- Thank you for joining me.- Thanks, it's been good to be here with you. Thank you.

We're almost a month into 2019. 

Unfortunately, that means we're over a month into the government shutdown. 

David Ethridge,  PwC's U.S. IPO Services Leader, broke down what he expects for IPO's in 2019 and how the government shutdown is impacting the IPO market.

"I think it's very much a function of where you sit in the pipeline, so if you're already through with your comments and you were a company that said, I'm gonna flip it into the light in the fourth quarter, and you chose not to go, then you're very much feeling a bit of stress right now, because you might've been anticipating going in January before the Feb 14th dropped dead on your financials going stale, and this could be a period of time that's disconcerting for you and your management team. I would say most companies, though, go into this process with a good feeling for their capital plan, where the IPO fits within that, and they're likely to be able to weather the storm on this kind of thing for some period of time," said Ethridge.

"If you were not already in the light with your filing, then this is potentially also disruptive if you thought you were gonna flip it into the light in early January and go," he continued. "If you were someone who was thinking about waiting until you already had your 2018 full-year financials, and dropping those into your filing, this may or may not be affecting your timeline, and I think a lot of these larger IPOs that people have been thinking about in the tech world, at other places, were probably more in that camp, such that this may not yet be that disruptive to their timelines."