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Viewed from Across the Pond, A Tale of Two (IPO) Mindsets

IPOs are ready to roll.

IPOs are on hiatus.

Same subject, two statements, different mindsets, different geographies.

The initial public offering is the among the most visible (and, as stakeholders hope, lucrative) exit strategies of management teams and private investors such as private equity or venture capital or angels.  But the success of the IPO has everything to do with the optimism of investors, who may charitably be called fickle.

The fickle investor makes or breaks an IPO, sometimes wildly so.  Take, for the example, the boosts to Nutanix, up triple digit percentages since opening day.  Or Coupa Software, up 54 percent since debuting last week.

Conversely, the news came from Europe that two firms — one in the UK, a gym operator, PureGym, and one in Germany, OfficeFirst, a real estate outfit, were in fact pulling their IPOs from the public markets.  The rationale given, as it so often is: Volatility in the stock markets, a nod to fickle investors.

The bifurcation here is startling and might be traced to different views not only of investors but the US — and specifically interest rates.  In Europe, there are some macro concerns — such as Brexit — that have roiled markets. But those macro concerns also have at heart, at least partially, concerns over rates.  As interest rates rise, investors turn attention from stocks, which have been the only game in town for real returns on capital that retail investors can play, to bonds and other asset classes, where yield becomes more attractive and relatively safer (at least in perception).

Rising rates in the US might lure capital from abroad.  Rising rates in the US also seem to hint at accelerating economic fortunes within that country, which hint at growing businesses, which in turn hint a hiring and new investment activity,and especially investments in tech to boost competitiveness — which in turn helps explain why some tech firms are getting a major boost as they go public.  Watch for dry powder, via investors on the Continent, to find its way to the US should those trends continue and, especially, strengthen.

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