The IPO market has shown significant signs of life, as the last two months of activity have produced 69 new issue pricings, or roughly 45% of the total activity for the entire year thus far. Sector participation, while still heavily weighted on medical stocks, additionally offers a broad section of other industries with the pace of activity expected to continue for the balance of 2018.
A company’s ability to file a draft registration filing, creates a shadow inventory of potential IPO offerings, as these filings are done privately and not disclosed until an actual public filing either through an S-1 or F-1 are released. Moreover, when a company does eventually make a filing public, the timeline associated with getting a deal done is roughly 30 days.
This leads us to the recent filing of an electric car maker from China – Nio Inc (NIO), which filed on Monday, and is looking to list on the NYSE. NIO has designed an electric vehicle that travels zero to 100 in 4.4 seconds, with vehicle production launched in December 2017, while deliveries began in June 2018. As of July 2018, NIO has delivered 481 vehicles, with a reservation log of approximately 12,000. The company has subsidiaries in China, the United States, Germany and the United Kingdom.
Investors looking to buy a slice of this pie need to look past the lack of financials, as the company will remain mired in losses for quite some time. This is an investment for longer term players, perhaps similar to how buyers viewed Tesla (TSLA) when the company went public back in June 2010. NIO certainly represents a leap of faith; however, a solid management team, a shifting wealth society within China and least we do not overlook the 15.2% ownership in the company held by Tencent indicates that this will be one of the big stocks for the fall. We are looking for the deal to price mid to late September.
NIO initially filed a DRS at the end of April, clearly with the intent of coming public in the near future; however, we wonder if the recent announcement by Tesla CEO Elon Musk whereby he mentioned the possibility of the company going private prompted this filing. Is NIO looking to fill the gap that will perhaps be left should TSLA go private?
Looking forward for the balance of the year, investors should expect activity in the new issues market to resume mid-September. We are looking for a robust calendar for the balance of 2018, and while the level of activity may be shy of what the market experienced in 2014, as 285 companies went public, we do expect to come close to that quota. Broader market conditions are conducive for a healthy new issue pricing environment