April 7, 2017    5 minute read

Why Are Some Big Companies Staying Private, and Will They Change Course?

Buying Time    April 7, 2017    5 minute read

Why Are Some Big Companies Staying Private, and Will They Change Course?

2016 was a disappointing year for IPOs across the globe; it hosted not only the fewest IPO filings since 2009, but also the smallest amount of capital raised in at least the last decade. In fact, IPOs in 2016 raised 4.7 times less capital than in 2014, according to Renaissance Capital. Despite the frosty IPO atmosphere, there are a few prominent companies who have recently undergone, or plan to undergo, IPOs. As the climate shows signs of changing, though, it’s worth assessing what going public can offer to some prominent companies staying private in a variety of sectors – many of which one may be surprised not to find listed on a stock exchange.

Uber Technologies Inc

Uber has undergone a number of rounds of private equity and debt financing. In 2016 alone, they acquired $3.5bn from Saudi Arabia’s sovereign wealth fund and raised $1.15bn via debt financing. It has been widely speculated that the next step for Uber is to undergo an IPO.

However, there are a number of reasons why they should not go public quite yet. Firstly, Uber halted its operations in China late last year, which has cost them a great deal of business in the world’s most populous country. Secondly, the company has come under scrutiny due to their involvement in US politics. Uber’s decision to suspend surge pricing at JFK airport in New York shortly after Trump’s infamous executive order on immigration was seen as sly and crafty, with the aim of undermining and taking advantage of the taxi drivers’ strike. This was widely covered on social media, and caused the hashtag, DeleteUber, to trend on Twitter, thus damaging their reputation.

Thirdly, Uber and their CEO, Travis Kalanick, have been inundated with a number of lawsuits, from employment disputes to sexual harassment claims. These have further tarnished their reputation, which will undoubtedly affect the value and success of an IPO.

Spotify AB

Sweden-based Spotify is a music, podcast and video streaming service whose revenue relies on monthly subscription fees from their premium users and advertising fees. Although they are market leaders in the ‘free music’ space, their reliance on music labels has always been seen as unattractive to investors should they decide to go public.

However, they have recently signed a deal with Universal Music Group, their main music label partner, agreeing that premium users (who pay for the service) will have access to new albums ahead of non-fee paying users. This is a pivotal moment in their history as it demonstrates to future investors that they are taking steps to ensure their financial independence, thereby reducing the risk associated with an IPO.

This drastic move has signalled to the market Spotify’s serious intention to going public, though perhaps not in the typical fashion. According to the Wall Street Journal, Spotify do intend to go public in the near future, but by undertaking a direct public listing onto a stock exchange. This type of listing is rather uncommon, predominantly used by small companies.

The process differs from the traditional IPO as is allows the issuer’s stock price to be determined by supply and demand, evades the ‘early offering’ stage, instead providing a more even and fair playing field for investors, and bypasses the often very costly underwriter fees involved.

Aston Martin

The celebrated and respected luxury automobile manufacturer is one of only a handful of well-known ‘mainstream’ car manufacturers left in the world who are not listed on a stock exchange. Founded in 1913 and most commonly known for their stylish and expensive cars, which often appear in the James Bond franchise, Aston Martin have had a great many financial troubles – particularly in the third quarter of the last century, where they went bankrupt seven times.

They were briefly owned by the Ford family from 1987 to 2007 before being sold to a consortium of investors. Despite disappointing pre-tax losses in recent years, Aston Martin have projected a spike in revenue of $221m to hit almost $1bn this year (a 37% increase on last year) due to increased demand for the DB11 model.

Additional revenue bumps due to their diversification into luxury prams and luggage, their recent prevalence among ‘new money’ high net worth individuals in China and many Arab states, as well as substantial job cuts, have only strengthened their financial statements and made them more and more attractive to investors looking to reap the rewards of an Aston Martin IPO. If they can maintain a strong and consistent financial background, then they are well on their way to listing successfully on a major stock exchange.

Unicorns Comfortable in their Hooves

These are just three of the companies staying private which one might have expected to be publicly listed. But there are a great number of others who have chosen not to list on a stock exchange due to shareholders’ reluctance, outstanding lawsuits and current reputational damage, poor financial performance and less-than-ideal market timing, such as Dropbox, BuzzFeed, Airbnb and McLaren. The market may be slow now, but there are plenty of unicorns waiting in the wings for the right moment to break out.

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