Moneycontrol PRO
Live: LIVE | Page Industries Jockeying To Record High?
you are here: HomeNewsWorld

US IPOs can’t shake 2022 slump after thriving through pandemic

Companies have raised a combined $4.9 billion via US initial public offerings this year, less than 6% of the record sum raised in the first half of 2021, according to data compiled by Bloomberg, While 2021’s volume was an historical outlier, this year’s paltry total distantly trails the $47 billion five-year average for the period.

June 29, 2022 / 06:48 AM IST

Companies last year defied the coronavirus pandemic to go public at a record pace. Now, market volatility, inflation and fears of a downturn have brought an abrupt end to the listing party.

Companies have raised a combined $4.9 billion via US initial public offerings this year, less than 6% of the record sum raised in the first half of 2021, according to data compiled by Bloomberg, While 2021’s volume was an historical outlier, this year’s paltry total distantly trails the $47 billion five-year average for the period.

Dealmakers said the IPO drought is unlikely to let up this summer and could even drag through the rest of the year if the economic outlook doesn’t perk up.

“All these indicators that investors are very focused on will require positive momentum before we can expect an improvement in capital markets activity,” said Alaoui Zenere, JPMorgan Chase & Co.’s co-head of equity capital markets for financial institutions and financial technology, referring to data points such as the consumer price index or the Cboe Volatility Index, or VIX.

Slow Start | US IPO volume in the first half hit its lowest point since the financial crisis


COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

“If the market stabilizes for a sustained amount of time, we could see a decent amount of supply,” she said. “But if the market continues to remain volatile, companies are going to take a prudent approach in accessing capital markets.”

Steeper Plunge

While IPOs have fallen from last year’s record around the world, the US plunge is far steeper. US volume is down 95% from this point last year, compared with only a 41% drop elsewhere, the data show.

So far in 2022, only two IPOs on US exchanges have raised more than $500 million. Alternative asset manager TPG Inc. raised $1.1 billion in January, while Bausch + Lomb Co., an eye-care spinoff from the health-care giant, got $630 million in May. TPG’s shares are down 13% through Monday’s close, outperforming the S&P 500’s 18% drop this year. Bausch + Lomb has fallen 13% in its first month and a half as a public company.

The waning fortunes of those and other recently listed companies could be giving IPO hopefuls pause.

Coinbase Global Inc. has announced a hiring freeze and rescinded offers to some job candidates after its stock lost more than three-quarters of its value this year. Electric-vehicle maker Rivian Automotive Inc. -- after raising almost $14 billion in the world’s 13th-biggest-ever IPO last year -- has struggled with supply shortages and manufacturing glitches, sending its shares down 73% since Jan. 1.

Trading losses

Not including blank-check firms that further elevated 2021’s record IPO totals, companies that went public in the US last year have sunk 44% on a weighted average basis since listing, according to data compiled by Bloomberg. Only about a 10th of those more than 500 companies are trading above their offer prices, the data shows.

Private companies, especially technology startups that have spent the past few years raising big rounds at eye-popping valuations in anticipation of IPOs have put those plans on the back burner. Not one venture capital-backed tech startup valued at $1 billion or more -- a unicorn -- has gone public in the US this year, according to data provider PitchBook.

For the first time in five years, newly public companies that haven’t turned a profit based on earnings before interest, taxes, depreciation and amortization -- a group dominated by those high-growth tech firms -- are underperforming their more staid, money-making counterparts as investors shift their money to cash flow over growth, said Lear Beyer and Craig McCracken, co-heads of ECM at Wells Fargo & Co., citing the firm’s research.

Filing Backlog

Meanwhile, the backlog of companies that have filed with the US Securities and Exchange Commission in the past year for IPOs has grown to 185. That doesn’t include startups that submitted their plans without making them public yet.

Instacart Inc., which filed confidential listing documents with the US Securities and Exchange in May, slashed its private valuation by 40% ahead of the long-awaited IPO. Its value fell to $24 billion in March, down from the $39 billion it reached in a March 2021 funding round.

Instacart is now looking to brave the IPO markets as soon as the window reopens, which isn’t expected to happen before September, said a person familiar with the company’s plans.

Other venture-backed companies awaiting that opening include Reddit Inc., Stripe Inc. and Discord Inc., said people familiar with each of the companies’ plans who asked not to be identified because the information was private. Industrywide concerns about online advertising revenue have added to Reddit’s skittishness, one of the people said. Representatives for those companies declined to comment on their plans.

For the startups having cash on hand from earlier funding rounds could help them survive until the outlook changes, even if their valuations might not translate to public markets anytime soon.

“We expect the equity markets will likely stay volatile for some period,” said David Ludwig, global head of ECM at Goldman Sachs Group Inc.

Block Trades

The IPO freeze is extending into block trades as well, another business traditionally lucrative for investment banks.

Financial sponsors with stakes in companies that have gone public are less inclined to sell their holdings in the lackluster public market. Some have opted to transfer stock to their investors, or so-called limited partners, instead of returning cash after a block trade.

The practice, known as a distribution, was traditionally used by venture capital firms but has gained popularity among private equity firms as well, Wells Fargo’s McCracken said.

Some public companies looking to raise capital have turned to more structured fundraising products such as convertible bonds to effectively sell shares at a premium to current prices.

While convertible bonds are a good way to mitigate market risks, companies will likely tap the market only when there’s a need.

“In this environment the companies likely raising capital will be ones that have a need, whether it be to fund acquisitions, organic growth, or refinancing the balance sheet,” he said. “This is in contrast to much of the last couple of years where companies frequently tapped the equity capital markets opportunistically to add dry powder to their balance sheets without a defined use of proceeds.”
first published: Jun 29, 2022 06:48 am
ISO 27001 - BSI Assurance Mark