After years of decline, the number of international companies opting for listing on U.S. stock exchanges is rising again as European tech and pharmaceutical companies move to tap American markets.
In 2001 1,344 international companies were traded in the U.S. but in 2014 that number of companies dropped 32 percent. But in 2015 the number grew for the first time adding 11 new companies to the existing 912.
One of the main reasons behind the switch is investors’ ferocious appetite in very specific market sectors. Many international companies are within a small group of business sectors such as tech and pharmaceutical. America is considered a hub for investors, customers and entrepreneurs in both sectors, making a good case for international companies to seek access to that holy trinity.
It would be fair to say that investors find tech companies quite popular if we are comparing American tech stocks in the S&P’s North American Tech Sector Index and the S&P 500 in general.
Jonathan Kees, Managing Director at Summit Research, is an expert on tech stocks and he says tech companies belong naturally in the U.S. as tech companies tend to be more volatile and younger, when they decide to go public.
“Investors overseas are more conservative, more long term and like more established companies,” Kees said.
Dividends are similarly attractive to investors in these specific sectors to add some stability to the investment case. In this case it’s worth comparing two Nasdaq indexes. One is the US Dividend Achievers (DVG), which includes companies like Johnson & Johnson and Microsoft and the other is the International Dividend Achievers (DAT) with insulin giants Novo Nordisk (Denmark) and Sanofi (France). It’s safe to say that investors are confident with what’s sold to them from abroad.
Members in the DAT index are all international companies listed in the U.S.
Close to all of these companies trade in the U.S. on a dual listing, meaning that their stock is traded in both their domestic market and here in the U.S. That too is the case with companies like Alibaba from China and Italian car company Ferrari, two of the most hyped IPO’s within recent years.
However, international companies come in another format as well. Since America is considered a hub in tech for instance, start-ups will move to the U.S. to gain access to venture capital, qualified labor and knowledge in places like Silicon Valley early in a company’s lifetime. If that eventually leads to an IPO this specific company will be registered as American even though its roots (and sometimes even main source of revenue) will still be back home.
One of these companies is Zendesk, which went public on New York Stock Exchange in May 2014. Their main product is a customer service platforms considered one of the best in the market.
Zendesk was founded in an attic in Copenhagen in 2007 by three Danish entrepreneur, but now their headquarter is in San Francisco. Despite its Danish heritage it was never an option for the company to go public anywhere in Europe. Marc Capi, Vice President of Finance at Zendesk was hired to be the main man in the IPO three years ago and one of the reasons that the U.S. stock market was attractive for Zendesk was the interest among investors.
“If you are a software company the investor perspectives are bigger in the U.S,” Capi said. “The appetite was not as big elsewhere as here.”
After three months on the market Zendesk was already up 63 percent from it’s initial offering price. Today Zendesk is worth 101 percent more than in May 2014.
When Zendesk initially started talks with investment bankers trying to find a partner to get them public, they were mainly seeking a stamp of approval among some of the world’s biggest companies and that task is easier as a public company.
“It’s important for our customers to know that we are a viable, sustainable company,” Capi said. “The IPO allows us to have a better financial conversation with our customers.”
Capi, with 30 years of experience in the tech world, mentions the fact that it’s easier for global investors to gain access to American markets than the opposite scenario and that too needs to be taken into consideration. He’s confident that the number of international companies traded in the U.S. will continue to rise.
“Investors need to look beyond Silicon Valley when they invest,” Capi said. “The breaking down of trade barriers have allowed investments to become more international, and especially within the sharing economy the potential is continuing to grow.”
In 2016 the trend might very well continue as a bunch of European pharmaceutical firms including Swiss immunotherapy firm AC Immune, cannabis drugmaker GW Pharmaceuticals from England and French allergy company DBV Technologies all have tapped the huge amount of capital available in the U.S. Companies wants to go public while there is some optimism in the markets.
“It’s all about timing,” Jonathan Kees says. “The bankers are advising companies to go public now versus next year, because the bull market can’t continue forever. This is especially important for European companies, as their economic uncertainty is higher at the moment.”
Senior Investment Strategist Lars Skovgaard Andersen from Danske Bank Wealth Management in Denmark, which manages approximately 136 billion dollars, the trend might very well continue since the use of technology in trading have accelerated within recent years.
“Everything is much simpler today and we experience that trends in other parts of business too, not just in finance, “ Andersen said, mentioning micro breweries and designer coffee as areas of business where technology have created a global marketplace, which once were reserved for the few.