Initial Public Spluttering

ReAssure's IPO canned

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What's going on?

Reinsurer Swiss Re had planned to bring its UK life insurance business to the stock market on Thursday – but it had a last-minute change of heart. Such previously rare occurrences have become increasingly common…

What does this mean?

Swiss Re’s ReAssure subsidiary buys life insurance policies created by other insurers but which they no longer want. ReAssure was set to “go public” at a valuation of roughly $4 billion – but between US stock markets hitting all-time highs (perhaps suggesting there’s not much additional profit to be had from stock investments) and British investors feeling uncertain about the future, there wasn’t enough demand for ReAssure shares at the price being asked. Rather than accept a lower valuation, Swiss Re decided to call a rain check.

Almost 50 European initial public offerings were canceled or postponed last year, double the number in 2017. That was partly thanks to a dramatic stock market fall at the end of 2018 that wiped out the year’s gains – and investors’ confidence. IPO worries, however, have continued throughout 2019.

Why should I care?

The bigger picture: Sometimes IPO, others IP-No.

When a privately held company’s up for sale, it often “dual-tracks” – coquettishly comparing bids from private suitors to the price it’d get from selling shares publicly. Some canceled offerings are therefore par for the course (isn’t that right, SAP?). But sometimes surly stock market investors force a company’s hand. Private equity firm CVC this week agreed to sell a stake in appliance warranty provider Domestic & General to a sovereign wealth fund, rather than face investor scrutiny by taking it public.

For markets: The meek shall inherit the profit.

Investors whose appetite for new stocks has waned probably avoided recent disappointing debutants like Aston Martin and Farfetch – and may have been vindicated again last week. Recently listed UK peer-to-peer lender Funding Circle said on Tuesday that weaker demand for its loans and tighter controls meant that its revenue growth this year would be half what investors expected.

Originally posted as part of the Finimize daily email.

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Delta Alpha Mike November

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