The IPO class of 2019 in the financial institutions space was not the biggest of all time, but the stock performance of those newly public companies and of the sector should entice others to consider going public.
Since the June 28 close through year-end 2019, the price change of the KBW Nasdaq Bank Index, up 15.7%, and financial companies in the S&P 500, up 11.4%, outpaced the 9.8% increase in the broader S&P 500 Index. Of the companies that went public in 2019, the financial sector was one of the best-performing sectors, said Kathleen Smith, principal for the institutional research and IPO exchange-traded fund provider Renaissance Capital.
“This performance tells us what we’re going to see in 2020,” Smith said in an interview.
Smith pointed to several financial companies with a private valuation above $1 billion that could go public in 2020. Some of those include Stripe Inc., the payments processor with a $35 billion valuation; Robinhood Markets Inc., the pioneer of free online trading valued at $7.6 billion; Credit Karma Inc., a personal finance company with a $4 billion valuation; and Root Insurance Co., a property and casualty insurtech with a $3.65 billion valuation, Smith said.
In 2019, the financial sector saw few blockbuster IPOs. The total value of the transactions plummeted 49.0% year over year to $2.90 billion, while the total value of all U.S. IPOs increased some 35% to above $60 billion, according to S&P Global Market Intelligence data. Large transactions such as Uber Technologies Inc.’s $8.1 billion IPO and Lyft Inc.’s $2.34 billion IPO helped push up the overall U.S. total. However, Uber and Lyft saw their stock prices come under considerable pressure, while Tradeweb Markets Inc, which produced the financial sector’s largest 2019 IPO with a $1.08 billion deal, finished the year up 71.7%.
The Tradeweb deal was much smaller than 2018’s largest financial IPO, a $2.75 billion IPO from AXA Equitable Holdings Inc. The AXA IPO accounted for nearly half of the financial sector’s IPO deal value in 2018 and nearly all of the insurance underwriter IPO value that year. In 2019, the insurance underwriter space did produce three IPOs, including an $84.4 million deal from Palomar Holdings Inc., which was the best-performing stock in the financial sector IPO class with an increase of 236.6% at year-end.
The second-largest 2019 financial institution IPO came from AssetMark Financial Holdings Inc., which was spun off from the Chinese brokerage firm Huatai Securities Co. Ltd. The stock price of AssetMark, a platform for registered investment advisers, notched a 31.9% gain by year-end.
Josef Schuster, founder of the IPO-oriented index provider IPOX Schuster LLC, said the wealth management space has benefited from rising equity prices, and companies have been acquiring firms with financial advisers. Schuster recently purchased shares of AssetMark.
Several private equity firms have been looking to consolidate wealth managers, and Goldman Sachs Group Inc. executed its largest post-crisis acquisition with a $750 million acquisition of United Capital Financial Advisers LLC.
“It’s a game of scale,” Schuster said in an interview.
Even though many of the financial companies that went public in 2019 saw their stock prices increase, the number of deals in the space dropped to 23 from 26 in 2018. The largest drop came from the bank and thrift segment (excluding mutual bank conversions), which produced seven IPOs in 2019, down from 13 in 2018. However, investors have been supporting those that did go public. Of the bank and thrifts that executed IPOs in 2019, only CrossFirst Bankshares Inc. saw its stock finish the year below its IPO price, and that drop was just 0.6%. The others saw their share prices rise at least 8.8% at the end of 2019, and cryptocurrency-focused Silvergate Capital Corp. was the biggest gainer with a 32.6% increase.
Given the rise in the bank industry valuations, the number of private depositories considering an IPO has likely increased in early 2020 compared to early 2019, when markets saw more volatility, said Alex Krasutsky, a managing director of equity capital markets at D.A. Davidson & Co. However, Krasutsky said some banks could halt pursuit of an IPO until after the November U.S. presidential election because they fear the results could hurt their stock prices.
“They might think, ‘Let’s wait until after that’s over,'” Krasutsky said in an interview.
Renaissance Capital’s Smith agreed that the election could slow down IPOs. However, she expects the window will be open for at least the first half of 2020, and financial companies will look to go through.
“There’s a lot lined up,” Smith said.
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