2018 Retail IPO Outlook

After two consecutive years of a slump in initial public offerings (IPO), 2017 saw a remarkable comeback in IPO activity across U.S. exchanges. Virtually every statistical category—offerings (+52 percent), proceeds (+89 percent) and filings (+59 percent)—significantly rose from 2016, according to the 2018 BDO IPO Outlook, our annual survey of capital markets executives at leading investment banks.
Leading the pack last year was the healthcare industry, accounting for nearly one-third (29 percent) of total U.S. offerings, closely followed by technology. Nevertheless, consumer business and retail was not to be left out, with its own share of prominent public debuts in 2017—including Stitch Fix in November, Blue Apron in June, and J.Jill in March. On a global level, popular brands like Germany’s HelloFresh, Hong Kong’s Crystal International Group, and Canada’s Canada Goose also made the transition to becoming public companies.
IPO Outlook for 2018
Fueled by last year’s momentum, capital markets executives expect total U.S. IPO activity this year to keep pace: Close to three-quarters (72 percent) of survey participants expect the number of U.S. IPOs in 2018 to increase, with the average offering equaling $260 million. Much of this increase can be attributed to seeing continued positive returns from new offerings, as cited by 38 percent of bankers.
Nevertheless, this optimistic sentiment was not quite extended to the retail and consumer business industry, where expectations for 2018 are more subdued. Over half (60 percent) of survey participants believe IPO activity in consumer business and retail will decrease in 2018, while the remaining 40 percent expect it to remain the same (20 percent) or increase (20 percent).
Expectations for U.S. Industry IPO Activity in 2018
Industry Increase Stable Decrease
Technology 89% 10% 1%
Biotech 71% 24% 5%
Healthcare 60% 29% 11%
Financial 45% 36% 19%
Energy/Natural Resources 38% 39% 23%
Media/Telecom 38% 34% 28%
Industrial/Manufacturing 36% 42% 22%
Real Estate 28% 48% 24%
Consumer/Retail 20% 20% 60%

Source: 2018 BDO IPO Outlook Survey (These percentages were based on the 100 capital markets executives at leading investment banks surveyed in December 2017)
This reflects an even less hopeful outlook compared to last year’s predictions, in which 42 percent of executives predicted that IPO activity in retail would decrease, 42 percent expected it to stay the same, and 16 percent to increase—perhaps revealing increased doubts or uncertainty about retailers’ ability—or desire—to go public.
Capital market executives cited many factors that could threaten IPO activity overall, including global political and economic instability (33 percent), inflated private valuations that will not be supported in public markets (22 percent), and domestic political instability (18 percent).
The specific threats to retailers, however, are wide-ranging; many retailers today face competing issues that demand urgent attention, which can consequently, lead to a delay in a company’s planned IPO. This is especially true at a time when retailers are undergoing a radical technological and experiential transformation. Then, there is the fact that traditional IPOs are no longer seen as the only exit strategy viable to high growth companies. This year may see private companies look increasingly to direct listings, initial coin offerings (ICOs) and privatization as alternate paths to financing growth.
Uncertainty for Retail’s Short-Term Future
The weariness expressed by investors for consumer business and retail is complemented by similarly anxious views expressed by consumers as they evaluate the industry’s short-term future. According to the Conference Board, consumer confidence decreased in December, with many citing worries about business and job prospects in the year ahead. The percentage of consumers anticipating business conditions to improve over the next six months declined from 23.1 percent to 20.2 percent, while those expecting conditions to worsen increased from 6.7 percent to 9.2 percent.
Thus, much is left to be seen in 2018, as retailers battle the notion of a “retail apocalypse” to find innovative and meaningful ways to connect with their audiences. And for those that are considering an IPO, it is important to look beyond the current business landscape and evaluate the potential long-term profitability tied to being publicly traded.
For an in-depth look at our findings, download and read the full 2018 BDO IPO Outlook survey here.
For more information, contact Ted Vaughan at tvaughan@bdo.com. And, be sure to keep up with the latest retail news by subscribing to our blog on the Consumer Business Compass homepage here, and follow us on Twitter at @BDOConsumer.