The U.S. IPO market is expected to bounce back next year after a forgettable 2016, fueled by a sunnier economic outlook and a bit more certainty following the presidential election — factors that encouraged the Federal Reserve to hike interest rates.
The Fed lifted interest rates by 25 basis points on Wednesday, the second increase since the financial crisis.
It also signaled a faster pace of rate hikes in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation.
Public listings will also get a boost next year from private equity firms looking to exit their investments, executives at both the Nasdaq and the New York Stock Exchange told Reuters.
The star-studded potential pipeline of companies set to make their debuts in 2017 includes messaging app Snapchat's parent Snap and ride-hailing company Uber Technologies — both "decacorns," or companies valued at tens of billions of dollars.
"We are going to see more companies go public now that we are through with the elections," said John Tuttle, the global head of listings at NYSE. "We have a clear picture of what the next four years will look like from a regulatory and policy standpoint. And companies like certainty."
IPOs in the United States in 2016 fell by more than a third from 2015. A quarter of the 102 companies that made their debuts this year are trading below their IPO price, according to Renaissance Capital, a manager of IPO-focused exchange traded funds.
Joseph Brantuk, vice president and head of new listings and IPOs for Nasdaq, said there were currently 96 active applications for public listings in the United States in 2017. Of these, 53 could be listed on the Nasdaq.
The U.S. IPO market in 2016 is on track for its worst year since the financial crisis in 2009, when just 56 companies listed their shares.
Apart from uncertainty surrounding the U.S. presidential elections, investors this year were also skeptical of the Fed's rate hike path mainly because policymakers signaled four raises but held back until their last meeting of the year.
"Higher interest rates may induce some private equity firms to take buyout-backed companies public," said Jay Ritter, an IPO expert and a professor at the University of Florida.
Higher interest rates make debt more expensive than equity as a funding source for companies to expand their business.
Also, several private equity firms are nearing their exit period after holding on to their investments for five to six years.
Venice, California-based Snap could go public as soon as March and is expected to be valued at $20 billion to $25 billion.
A listing by the company, which is backed by Sequoia Capital and T. Rowe Price, would be the largest U.S. technology IPO since Facebook's debut in 2012 with a value of $81.2 billion.
Investors also widely expect Uber to file for an IPO in 2017. The company was valued at about $63 billion after its latest round of funding in June.
A public debut by music streaming service Spotify, one of Europe's most valuable tech start-ups, would be a boon for Europe where tech firms tend to sell early, getting swallowed up by bigger fish in Silicon Valley or China.
Based on active IPO applications, Brantuk said technology, health care and financial sectors look the most active.
"We have never been busier."