Bad timing: Hotly-anticipated tech IPOs are dealing with a brutal one-two punch of coronavirus fears and election uncertainty
- Top tech bankers are grappling with a risk factor that wasn't even on their radar just two months ago: the global spread of coronavirus.
- When it comes to deals, sharp share price moves are complicating negotiations. And for IPOs, two options are emerging - make a go at it before things potentially worsen, or hold off entirely.
- Morgan Stanley's head of global technology M&A said the situation is making buyers and sellers take a "stop, look, and listen mentality."
- Speaking about investor appetite and timing for IPOs, one banker said: "If you're really desperate to go, you might have to take a buck or two lower - but maybe it's better to go now."
- DoorDash revealed last week that it has confidentially filed paperwork to go public, though gave no guidance on next steps. A DoorDash representative declined to comment on the company's timeline.
- Other expected 2020 tech IPOs include Asana, which last month filed to go public via a direct listing, and GitLab, whose CEO told Business Insider last year he's also eyeing a direct listing, but not until November.
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Top tech bankers are grappling with a risk factor that wasn't even on their radar just two months ago: the global spread of coronavirus.
When it comes to deals, sharp share price moves are complicating negotiations. And for public debuts, two options are emerging - make a go at it before things potentially worsen, or hold off entirely until things settle down.
The situation has already impacted the travel of dealmakers around the world. Major banks including Citi, Wells Fargo, JPMorgan Chase, and Morgan Stanley have in recent days halted non-essential international travel for employees.
While some firms are encouraging employees to hold meetings using videoconferencing tools, that can't fully replace face-to-face meetings that dealmaking can require.
Meanwhile, global stock markets have been rocked by violent swings as investors assess the economic fallout from containment measures and supply chain disruptions. And the Federal Reserve stepped in on Tuesday with its first emergency rate cut since the financial crisis, adding another level of complication to capital markets transactions.
"If you're in the middle of negotiations and the share price is down 20%, of course it's impacting deals," said Anthony Armstrong, Morgan Stanley's head of global technology M&A. "It's a 'stop, look, and listen' mentality: let's let things stabilize, and then we'll see."
DoorDash and Asana had laid the groundwork for debuts
Against that fluctuating backdrop, it's too soon to understand exactly how the timelines of some of the year's most hotly-anticipated public debuts might evolve. But bankers had already told us late last year that 2020 would likely be front-loaded in terms of IPOs, with clients looking to avoid uncertainty around the November US elections.
DoorDash revealed last week that it has confidentially filed paperwork to go public, though gave no guidance on next steps. A DoorDash representative declined to comment on the company's timeline.
Other expected 2020 tech IPOs include Asana, which last month filed to go public via a direct listing, and GitLab, whose CEO told Business Insider last year he's also eyeing a direct listing, but not until November.
Outside of tech, companies including recording label Warner Music and shoemaker Cole Haan have postponed their IPOs after they had planned to kick off roadshows this week, Reuters reported Monday.
To be sure, there has still been some activity in recent days across sectors. Biotech company Passage BIO started trading on Friday, and is down 9% since its public debut. Canadian waste management company GFL Environmental started trading on Tuesday, and its shares have traded down 9%.
Another tech banker said IPO logistics aren't a problem - he and his clients typically fly private to roadshows around the US, which addresses some concerns about air travel - but he's concerned about the potential for more market volatility.
The virus is prompting his clients to ask for advice, he said, but not yet to push back IPO plans.
"If you're really desperate to go, you might have to take a buck or two lower - but maybe it's better to go now, because it's not as bad as [it could be] in six to eight weeks. Some companies ready to go now should go now," he said.
M&A volumes plunging in China
Goldman Sachs said in a Tuesday research note that while the company is not yet taking a view on the specific impact of the coronavirus on M&A, its research division revised its deals outlook significantly. Now, Goldman forecasts global M&A volumes declining 2% over the next 12 months, whereas in January, the company forecasted 6% growth. The US will see a 4% decline across industries, while Europe will be up 3%, according to the latest estimates.
Deals are still happening, albeit at a slower pace: Goldman Sachs said in the report that announced M&A volumes in February fell 40% year-on-year in China and the US, with strategic buyers' volume down 47% year-on-year in the US.
The handful of US tech deals announced so far this week have largely been led by private-equity buyers. On Monday, IT-focused KKR portfolio company BMC said it would buy Thoma Bravo's Compuware for an undisclosed price, and on Tuesday, private equity firm Highview Capital and software company Firstlight Media said they would buy TV player Quickplay from AT&T.
Attorney Richard Silfen, a corporate M&A partner at Duane Morris, said while he has yet to see the virus directly affect the business operations of a tech acquisition target, he expects supply chain impacts soon.
"Sluggish resupply of inventory, coupled with reduced travel for sales meetings and trade shows, almost certainly have begun, or soon will begin, to impact operating results," Silfen said. "These factors, compounded by uncertain financial markets and related concerns about availability of financing at the anticipated closing date, have caused at least some would-be acquirers to pause and await signs of stabilization."
Those looking to go public are growing wary of volatility
The virus is already being called out in regulatory filings, including in language around material adverse event clauses in a February 21 filing with the SEC for Morgan Stanley's proposed $13 billion acquisition of E-Trade. In the retail space, the virus appeared as a risk in a filing for TGI Fridays, which is being acquired by a special purpose acquisition company.
One top banker who was not authorized to speak to the media said companies he knows that plan to file to go public after June aren't yet considering a delay. He said while he wasn't aware of anyone shelving a planned IPO in the short term, those looking to go public in coming weeks are wary of more market volatility and investors' appetite for new offerings.
Airbnb in September 2019 said that it expected to become a publicly traded company during 2020. The home rental startup at one point planned to start its IPO process in March or April, per Bloomberg, but now the outlet reports the company is pushing back its timeline.
The travel-focused company is particularly exposed to coronavirus-related cancellations in China - and apart from that also lost money in the first nine months of last year, per the Wall Street Journal. While the company previously said it has been profitable, the Journal said in that mid-February report it could be several months before the company even files confidentially to start the IPO process.
A representative for Airbnb declined to comment. The company said in September that it intended to go public this year.
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