Bats Global brings a glimspe of spring to the IPO market
The initial public offering market is back on track now, right?
Not quite, but analysts say it’s getting there, thanks to the strong performance of Bats Global Markets Inc. BATS, +0.42% which was trading 20% above its issue price Friday. Investors and companies were watching this non-biotechnology IPO for signs that the lackluster market was coming back to life after a very quiet spell.
“I don’t think BATS is broad enough to call the glut over,” said Leslie Pfrang, partner at Class V Group, an IPO advisory and management firm. “I do think it’s a green shoot of spring.”
There have only been 10 IPOs this year, a 77% decrease from 43 at the same time last year, according to Renaissance Capital, a manager of IPO-focused ETFs. The IPO market so far has comprised mainly biotechnology companies with heavy insider buying and so-called “blank-check” companies, which have no assets but aim to build them by making acquisitions.
Bats Global Markets is an exchange operator that focuses on stocks and exchange-traded funds in the U.S. and Europe, stock options in the U.S. and the global cash currency market. It raised $252.7 million in the IPO and listed on its own exchange.
The IPO was a success for the company for a number of reasons: BATS increased the number of shares in the offering, priced at the top end of its range and had a pop in shares on the first day.
“It was kind of perfect,” Pfrang said.
It was also redemption for the company as BATS’s first IPO attempt, in 2012, failed due to a technical glitch with the exchange.
The positive reception to the deal may provide the kind of icebreaker investors and companies were looking for in the IPO market. But Pfrang notes that it’s hard to view it as a direct comparison to other offerings, because it’s an exchange.
Instead, investors and companies should wait and look to future deals, including SecureWorks Corp., an information securities services company and a spinoff of Dell Inc., as a comparable for technology companies, and the casino operator Red Rock Resorts, as a comparable for consumer companies, said Matthew Kennedy, an analyst at Renaissance Capital.
Renaissance is also keeping an eye on Nutanix Inc., a visualization and storage company last valued at $2 billion, as a coming tech IPO with venture-capital investment.
“We’re inching closer to an IPO market where that VC-backed tech class can go public,” Kennedy said.
Kennedy noted that the Renaissance IPO index IPO, -0.29% which reflects the top 80% of newly public companies, has also been on an uptick and has outperformed the S&P 500 SPX, -0.03% in the past month.
Additionally, the VIX VIX, +3.24% index, which measures volatility and which many companies use to determine when to go public, has almost halved since mid-February. It closed at 28.14 on February 11, compared with a close of 13.72 Thursday.
The stalled IPO market may not have been all bad, Pfrang added, as it gave prospective IPO candidates time to firm up business plans and better prepare to be public companies.
“I think they’re going to come to market and be much more attractive candidates to public investors,” she said.