The US IPO market, unstoppable for nearly a year, has experienced a slowdown.
The stocks of fast-growing companies are less and less popular with investors. Many newly listed companies, whose shares surged after their IPO, fell below their IPO prices. At least three companies, fearful of jumping into a volatile stock market, postponed their IPOs after the S&P 500 started the week with its biggest three-day swoon in nearly seven months.
Some investors and bankers believe that next week could be a turning point. If the stock market calms down and the public debut of Swedish oat milk maker Oatly Group AB and software company Squarespace Inc. goes well, it could boost confidence in IPOs, they say. If volatility persists and these offers sizzle or are postponed, the IPO market could be pumping the brakes.
“Volatility makes transactions more difficult to initiate,” said Eddie Molloy, co-director of equity capital markets for the Americas at Morgan Stanley..
“At the end of the day, what we would like to see is stability in the markets and to see transactions take place and maintain their performance. Investors who make money from the last trade are always useful for the next trade. “
This has been the case for the past 11 months. The IPO market, which raised a record $ 168 billion in 2020, has already raised $ 158 billion in 2021, according to Dealogic data through Thursday. But the tides have recently turned as inflation fears have become concentrated and have prompted investors to seek safe havens outside of growing companies.
Honest actions Co.
, the consumer goods firm co-founded by Jessica Alba, jumped 44% to $ 23 on their first day of trading earlier this month. The stock closed Thursday at $ 14.91, below its IPO price of $ 16. Biggest IPO of the year thanks to money raised, South Korean e-commerce giant Coupang Inc.,
is now trading below its IPO price. Just like the operator of the Bumble dating app Inc.,
whose stock is down 27% this week.
Coinbase Global cryptocurrency exchange Inc.
went public through direct listing this year, an increasingly popular way for companies to go public that bypasses the traditional IPO process. While direct listings don’t have an IPO price, Coinbase is trading below where it landed at the end of its first day in the market.
On average, IPOs listed in the United States this year – not counting non-traditional methods like direct listings or special purpose acquisition companies – have risen 2.1% from their prices. IPO until the close of Thursday, according to the latest data available from Dealogic. By comparison, the S&P 500 had risen 9.5% this year through Thursday’s close. The Nasdaq Composite, known to be stacked with growing companies similar to those looking to go public, only rose 1.8% this year until Thursday. Both indices posted strong gains on Friday.
“You had this flood of IPOs and PSPCs, and there was a time when you couldn’t do anything wrong,” said Rick de los Reyes, co-portfolio manager of T. Rowe Price Multi-Strategy. Total Return Fund. “It’s a tough market now, with very high growth companies in disgrace.”
A healthy IPO market is important to pave the way for great potential debuts later this year, including the Robinhood Markets Inc. trading app and the $ 100 billion grocery delivery company Instacart Inc. , are also mandated to merge with private companies to make them public. A market where investors are reluctant to participate in transactions will make that task much more difficult, too, say bankers and fund managers.
In May, 13 PSPCs disclosed mergers, and of those, only one was trading above its IPO price earlier this week. Many fund managers heavily invested in tech companies have seen their portfolios drop sharply in recent weeks, making them less willing to take risks in IPOs or private investments in public stocks known as PIPEs. which are sometimes essential to successfully complete PSPC mergers.
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It was a quick chill for the booming market. As 2021 approached, the US IPO market was on fire, with companies rushing to launch IPOs after years of avoiding public markets. They were quickly rewarded: the average pop on day one of an IPO last year was 17%, and many continued to rise sharply from there.
Squarespace and Oatly are on deck next week to test investor appetite for large branded companies tapping into public markets. Oatly, backed by celebrities like Oprah Winfrey and Natalie Portman as well as private equity juggernaut Blackstone Group Inc.
and lead investor Verlinvest, is looking to raise around $ 1.35 billion on its IPO and is targeting a valuation of around $ 10 billion.
Squarespace, which provides for direct listing, boasted of an enterprise value of $ 10 billion during a fundraiser in March.
Oatly is expected to start trading on Thursday, while Squarespace’s listing is slated for Wednesday, according to people familiar with the matter. While investors will get a health check on the IPO market in the form of these debuts, Tim Creedon, director of global equity research at Neuberger Berman, said the problem with inflation is unlikely to be. not resolved so quickly.
“The issue that everyone is trying to get a handle on is inflation, and what are we willing to pay for future growth,” Creedon said.
Write to Corrie Driebusch at [email protected]
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