
From left, Frank Wang, executive director; Jan Craps, executive director and CEO; and Guilherme Castellan, CFO of Budweiser Brewing Co. APAC Ltd. pose with products in Hong Kong on Sept. 17.
Source: AP Photo/Vincent Yu
While the IPO window remains open, some large deals are facing challenges coming to market.
A handful of big transactions helped boost IPO activity earlier in 2019, but several high-profile IPO-hopefuls — WeWork Companies Inc.'s parent; Anheuser-Busch InBev SA's Asian arm; and Saudi Arabian Oil Co., known as Saudi Aramco — have hit speed bumps. While each company is facing unique issues, some believe the market's winds have shifted.
"The euphoria has died down a little bit," Reena Aggarwal, a professor with Georgetown University's Center for Financial Markets and Policy, said. Deal activity overall has slowed. Through Sept. 20, the total value of third-quarter IPOs is on pace to drop 52.8% year over year, and the total number of third-quarter IPOs is on pace to drop 27.7% year over year.
The high-profile IPOs on the horizon involving WeWork, Aramco and InBev underscore the shift in sentiment as the companies have faced questions about valuation, geopolitical and corporate governance issues. But some are hopeful large IPOs can energize the market in the near term.
According to Morgan Stanley CFO Jonathan Pruzan, the big transactions in the IPO pipeline brighten the outlook for the IPO business. "Whether or not we can convert those pipelines in September or the fourth quarter will depend on sort of the macro environment," he said Sept. 11 at an investor conference.
InBev is still aiming to execute an IPO for Budweiser Brewing Co. APAC Ltd., but it has reduced the size of its expected transaction by about half to roughly $4.7 billion. The offering was delayed in July after it appeared that the deal would price at the low end of the expected range.
Aramco's highly anticipated offering has the potential to become one of the largest IPOs of all time, but it, too, has had to make multiple attempts to execute the offering. If the company sells a 5% stake as planned at its desired $2 trillion valuation, the gross proceeds would reach $100 billion and easily surpass Alibaba Group Holding Ltd.'s 2014 $25.03 billion deal, the largest global IPO in the last 10 years.

Aramco's latest effort, after a postponement in 2018, began earlier this year and has been complicated by drone attacks on the company's facility that significantly disrupted crude oil production, highlighting risk factors that investors may not have previously considered. Saudi Aramco President and CEO Amin Nasser said during a Sept. 17 news conference that the Aramco IPO is still on track. But according to Georgetown's Aggarwal, the new perceived risk factors have the potential to delay the offering.
Adam Neumann, co-founder and chairman of The We Co.
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WeWork's parent, The We Co., is still aiming to execute its IPO but has been forced to postpone amid weak investor demand. Scrutiny on the offering intensified after potential conflicts of interest and other corporate governance issues came to light in The We Co.'s registration statement. For one, Co-founder and Chairman Adam Neumann, who just stepped down as CEO amid the backlash, has ownership interests in properties that The We Co. leases. The We Co. also paid $5.9 million to a Neumann-led entity for the trademark rights of "We" (the funds were returned after the transaction received backlash). Neumann also took out
"Those bells and whistles are just not going to fly," Aggarwal said.
Aggarwal said The We Co.'s issues represent a "tipping point" for the market, which has seen several high-profile, venture-backed issuers like Uber and Lyft underperform since their debuts. Others looking to go public should expect similar investor scrutiny. Investors have become more focused on cash flows and net profits as opposed to scale and revenue growth, said Tim Loughran, a professor of finance at the University of Notre Dame.
Investors often pursue themes in the IPO market and follow them until the success runs out, said David Erickson, senior fellow and lecturer in the finance department for the University of Pennsylvania's Wharton School. "You may be seeing the high-value private unicorn market be a little bit more difficult going forward for some of these companies," he said.
Still, Erickson said the IPO market remains open.
"Large deals for the right companies can get done," he said.

