2016 Retail IPO Outlook
When providing the BDO retail IPO outlook for 2015 at the beginning of this year, we asked: Will consumer businesses face a potential Alibaba hangover in 2015?
With the absence of a blockbuster IPO, consumer business market did indeed experience something of an IPO hangover. Amid global stock market volatility, investors were a bit skittish overall last year, and U.S. IPOs reflected that sentiment. According to data from Renaissance Capital, there were a total of 170 IPOs in 2015, down 28% from 2014. Health care was the clear standout industry, with 78 IPOs, followed by technology and financial services.
The consumer business industry was far from a no-show, though, with 15 IPOs last year, down only slightly from 16 in 2014 and 19 in 2013. And two of the top 10 biggest IPOs of the year were consumer businesses. Wearables company Fitbit came in at number six ($841 million) and Blue Buffalo Pet Products at number seven (778 million), according to data from FactSet and Dealogic
In response to a tepid IPO landscape in 2015, some consumer business companies like Neiman Marcus Group Inc. and grocery chain Albertsons Cos. hit the brakes on going public until sentiment improves overall. So, could 2016 be a year of IPO revival following 2015's hangover?
In our recent 2016 BDO IPO Outlook Survey, we polled 100 capital market executives on their expectations for the IPO market in 2016 and found that investment bankers are divided in their projections for the year ahead. While 37% predict an increase in the number of U.S. IPOs in the coming year, almost an identical proportion (36%) forecast activity as flat compared with 2015. Meanwhile, just over a quarter (27%) expect a decrease in offerings on the exchanges.
Bankers are less divided, however, in their outlooks for the consumer business industry. In fact, the majority (82%) expect no growth in the year ahead, with 40% noting flat projections and 42% anticipating a decrease.
Despite the lack of optimism among bankers, sentiment among consumers appears to be on the upswing. According to the Conference Board, consumer confidence exceeded expectations and hit 96.5 in December. Contributing to this enthusiasm was likely record low unemployment levels in November.
While some retailers may be preparing to move in on the opportunity to go public, many are still weighing the risks and rewards of such a move. When considering an IPO, companies need to look beyond the current business landscape and evaluate the long-term profitability of being publicly traded.