Chapter 1
Turmoil unravels across the global economy
The world is facing a perfect storm of macroeconomic, geopolitical and societal challenges.
It is now clear that the global economy will experience pronounced uncertainty for the foreseeable future. The impact of COVID-19 has reverberated across the world, leaving economies struggling to cope with disruption to the demand and supply of labor, goods and services. From factory shutdowns, to supply chain disruptions, labor force shortages and cash flow pressures, organizations worldwide are feeling the extensive shock of the outbreak.
This extreme market volatility makes any ambitions to go public highly uncertain, both in terms of timing and valuation.
With interest rates already low in many of the world’s biggest economies – and in the case of Europe below negative – central banks have little room left to lean on monetary policy to help soften the blow of the virus and stimulate the economy.
Instead, fiscal spending will likely serve as an immediate remedy to help stem near-term losses with targeted spending defined by each country’s immediate needs.
The extraordinary set of circumstances facing companies today means that for many with the ambition to list in 2020, their IPO calendar will wholly depend on market conditions, and how they can manage their businesses in this current environment. For prospective IPO candidates choosing to hold out until sentiment improves, there are a number of steps that can be taken during this period of uncertainty to get their companies in the best shape possible before going to market.
This bout of volatility is an ideal time for companies to assess their business models. Companies can look at real-time worst-case scenarios and judge if their existing business models could withstand the same pressures facing public companies today.
Part of this assessment should concentrate on organizations’ capital expenditure, cash flow needs and human resources structure. Companies that take the necessary steps to spot any existing weaknesses will have more time to fix the issues and re-define their business models, thereby attracting greater investor appetite when the time is right.
While uncertainty reigns, companies must not lose sight of their ultimate goals and continue to focus on improving the creative foundation of their companies – and their underlying business models. Ultimately, this will help to propel their company’s growth and value in the future.
To get more insight into the steps companies need to take to maximize their chances of IPO success, download our Guide to Going Public (pdf).
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Chapter 2
A quarter of two halves
Despite a strong start to 2020, the IPO market has since slowed significantly.
Macroeconomic uncertainty and distressed financial markets heavily impacted the Q1 2020 IPO landscape, dampening IPO deals and proceeds. Q1 2020 registered 235 IPOs with proceeds of US$28.5b. However, despite market volatility, Q1 2020 performance exceeded Q1 2019, with an 11% and 89% increase in both number of deals and proceeds, respectively, but this came from a relatively low base in 2019.
Volatility looks set to remain
Market conditions are likely to remain erratic until at least the next quarter and not until the coronavirus subsides at a global level.
There is a strong and building pipeline of companies ready to go public. They need to be ready to complete their transactions quickly to take advantage of narrow windows of opportunity that may open.
We expect market conditions to improve in Q4, probably more so after the US presidential election.
Companies that still hope to list this year must remain vigilant of what government policies and stimulus measures are most likely to affect their sectors and businesses, and hence their IPO plans.
Summary
The year started with hopes for an IPO window of opportunity, but these were cut short by the impact of COVID-19.
