Companies planning to float on the stock market this year must have thought the jig was up when markets went into a tailspin in March.
Yet, here we are in November, with the MSCI World Index at an all-time high, US indices close to or at their high points for the year while even the Footsie is more than a thousand points above the level it hit when the first lockdown was announced in late March.
Small wonder, then, that a number of companies have dusted off their flotation prospectuses and are making a dash for cash.
Dr Marten out of step with the other companies preparing to float
In London, a sure sign that a spell of stock market aggro could be over is the news that Dr Marten, the iconic footwear maker, is preparing to list.
Across the pond, Airbnb, the technology firm that matches up travellers looking for somewhere to stay with those who have a spare room, has submitted its plans for an initial public offering (IPO), despite its business still suffering from the effects of the coronavirus pandemic, which has put a serious crimp on worldwide travel.
Meanwhile, had Jack Ma, the founder of e-commerce platform Alibaba, apparently not put the noses of several high-ranking Chinese government officials out of joint, the Chinese tech giant Ant Group would have become the world’s largest-ever IPO earlier this month.
To rub salt in Ant’s wounds, its rival, Lufax, got away a successful flotation in the US at the end of October, raising around US$2.36bn.
In Russia, another e-commerce group, Ozon, is planning to list in the US, with a valuation reportedly somewhere between US$4.6bn and US$5.6bn.
Not to be outdone, Darktrace, a British cybersecurity company, is said to be targeting a £3.8bn (US$5bn) valuation when it eventually floats on the London Stock Exchange, while London is also said to be the exchange of choice for some other well-known tech companies looking to go public, such as Deliveroo and Trustpilot.
All of which begs the question, why now?
Well, the big clue is in the second paragraph of this article; global stock market indices are at an all-time high, so what better time to tap the market?
The other thing to take on board is that a large number of these companies planning to float are technology stocks, and they have done particularly well over the last six months or so but that might not last.
The rash of IPO announcements comes at a time when institutional investors are in the process of adjusting their priorities. When the pandemic hit, to be followed by inevitable lockdowns, institutions got shot of stock in companies deemed to be the hardest hit by the pandemic, namely aerospace and travel-related stocks, hospitality plays (restaurants, bars, hotels, cinemas), bricks and mortar retailers plus any company deemed to be overleveraged.
That resulted in valuations of some well-known names hitting historically low levels and when the news broke of a highly promising coronavirus vaccine (to be quickly followed by another and hopefully yet another in the coming weeks), “stock rotation” became the name of the game for many investors.
Specifically, that would be selling off overbought stock in tech darlings and using the money to snap up some old school companies that no longer look odds-on to go bust, at bargain prices.
Old school or high-tech?
The challenge for the tech companies looking to lure investment is to pitch their offer prices at enticing levels; those levels probably won’t look alluring on a fundamental basis (i.e. projected multiple of earnings per share – assuming they have any – or, if not, sales per share) compared to the old school stocks fund managers are rediscovering, but set against the stratospheric multiples of stock market darlings such as Tesla, it should still be possible for the canny investment banks masterminding the flotations of tech stocks to argue that the stock they are selling is cheap.
(That never seems to beg the question, why are the current owners selling, then but that’s a story for another day).
It’s important to recognise that while the outlook for vaccines to combat COVID-19 looks very promising, distributing the vaccines will prove to be an arduous and long-winded logistical affair.
The stock market has always been a “buy on the rumour, sell on the fact” kind of a place and it may be that the latest dash for cash is just another example of investment banks and private equity groups knowing when to strike while the iron is hot.