Back with a boom

FOR the rare banker who had managed to stay employed in the area of initial public offerings during their long slump, the winter holidays were happily free of relaxation. As the best year for IPOs in America since 2004 was drawing to a close, new opportunities were dropping from the sky like snowflakes.

Breaking the record of 406 listings, set in 2000 during the dotcom bubble, remains almost unimaginable, but 222 companies did go public in 2013—a sevenfold increase from 2008, according to Renaissance Capital, a research and asset-management firm. Its IPO index was up 50%, a result that all but ensures further offerings.

Whether this reverses the secular decline in the number of public companies in America is unclear. Reasons for the contraction remain, notably high regulatory costs for all but the most intricately structured listings. Some firms that had begun the process of going public in 2013 ended up being purchased, says Frank Maturo of Bank of America Merrill Lynch. Mergers have also returned and private-equity firms have raised large pools of capital, suggesting that more companies will disappear from the markets.

Yet the environment is clearly changing. The enthusiasm for new deals can go a long way, at least in the short term. Before Twitter sold 13% of its shares in November bankers raised the offer price repeatedly, pushing the initial valuation of the microblogging service to $18 billion. By late December the company was worth over $40 billion before its market capitalisation fell back to $33 billion.

Another 44 less prominent technology companies went public more quietly, selling similarly small stakes and raising on average $149m. Even biotech firms, a segment that the public markets had almost entirely abandoned, made a stunning return: 37 companies raised $73m on average. Kathleen Smith of Renaissance Capital can reel off a list of fresh deals which are expected in the months to come, spanning hotels (Blackstone, a private equity firm, is planning to sell La Quinta motels after making buckets in 2013 with the listing of the Hilton hotel chain), mobile payments (Square), hardware (GoPro, which makes camera headsets) and data analysis (Palantir Technologies).

Open Sesame

If the IPO market continues to be strong, many large financial firms may use it to restructure themselves. General Electric is expected to spin off its consumer-finance business, RBS its American banking arm (Citizens Financial) and Old Mutual of South Africa its American asset-management business. The American government is said to be eager to dispose of its stake in Ally Financial, which it picked up in the bankruptcy of General Motors.

The single biggest offering is expected to be that of Alibaba, a Chinese online giant, which could be worth more than $150 billion. It is not clear whether the listing will be done in Hong Kong or New York. Alibaba is exerting tremendous pressure on the Hong Kong stockmarket to weaken long-held rules that outlaw multiple share classes, which the company wants to use to limit the rights of outside shareholders.

More than a decade ago, when the New York Stock Exchange faced similar pressures and an unsympathetic regulator, it capitulated. The change has allowed the use of complex corporate structures in publicly traded entities. The single largest IPO in 2013 was the sale of a 20% stake in Plains GP, a master limited partnership (MLP), worth $2.8 billion. Its main asset is a stake in yet another listed MLP, Plains All American Pipeline.

The odd combination was echoed in at least five other IPOs last year. Each was designed to minimise corporate taxes and regulatory constraints, such as limits on management compensation—factors that used to discourage firms from going public. The message in this and other recent deals: there is more to come.