Business Forum: Overseas Firms Look To U.S. For IPOs

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This article originally appeared in the November 29, 2013 issue of The Pittsburgh Post-Gazette. It is reprinted here with permission. A version of this article also was posted in the December 2013 issue of Financier Worldwide under the title "U.S. Markets Become IPO Venue Of Choice for Non-U.S. Firms."

When China's e-commerce giant Alibaba -- with a valuation that may make it the world's third-largest Internet company behind only Google and Amazon -- made the decision to go public, listing in Hong Kong was its natural first choice.

What is more remarkable, the company has been planning to list in the United States, though details are not yet settled. Its initial public offering, projected to raise more than $10 billion (about six times Twitter's IPO target), would be the largest U.S. IPO since Facebook in May 2012.

For a decade, following the 2002 passage of the Sarbanes-Oxley Act, the business community watched as a growing number of foreign firms fled American capital markets. As one example, German powerhouses Allianz, BASF, Bayer, Daimler, Deutsche Telekom and E.on had de-listed from the NYSE by 2010, leaving only four major firms from Europe's largest economy remaining on the Big Board.

Today, a range of factors, including flexibility in corporate governance (such as a dual-class share structure) and eased requirements for foreign firms, are leading international companies to stage a comeback in U.S. listings. Twenty-eight IPOs here in 2013 have been by foreign companies, including the first Spanish firm to do so since 2004, Abengoa, which now plans to de-list from its home market.

Alibaba, with an 80 percent market share of online shopping in China, is not the first issuer to look elsewhere after first considering Hong Kong. The HKEx's general prohibition on companies with dual-class shares resulted in U.K. soccer club Manchester United -- reportedly the world's most valuable sports team in 2011 -- deciding to list on the NYSE last year.

Despite investor vote disparity in some cases, which U.S. investors have become accustomed to, there are many reasons why foreign firms listing in the U.S. is good for American investors:

  • Robust multitiered regulation from the Securities and Exchange Commission, stock exchanges and FINRA, the financial broker-dealer watchdog. Like it or not, our market regulators are the best in the world because our markets are the most complex and multifaceted.
  • U.S. investors can resort to U.S. courts to enforce anti-fraud protections. For better or worse, the United States has the most developed shareholder litigation bar in the world. Case law, regulations and experienced judges have developed to the point where litigation is fairly predictable and manageable. Plaintiff and defense counsel have a healthy respect for one another.
  • Investors will receive real-time reports in English and financial statements in accordance with United States Generally Accepted Accounting Principles or SEC-approved International Financial Reporting Standards.
  • Americans can invest in promising companies from overseas markets to diversify their portfolios and enhance their overall returns all within the safety of U.S. market regulation.
  • Like it or not, the U.S. banking and finance industry receives tremendous fees from IPO listings and capital markets activity generally, which ultimately boosts the U.S. economy, especially in metropolitan areas with large financial institutions like New York, Boston, Charlotte, N.C., and Pittsburgh (where financial and business services were the largest contributor to the regional GDP in 2012, according to the Pittsburgh Regional Alliance).