IPOs: Market closes for new stock issues
“For any company looking to go public, the landscape is bleak,” said Jessica Matthews in Fortune. The market for U.S. initial public offerings has suddenly hit the skids following a torrid 2021. IPO activity in the first quarter was the slowest it’s been since 2016, with just 18 companies raising a mere $2.1 billion. “That’s 95 percent less capital than they had raised this time last year.” About half the companies that did decide to test the waters this year are already trading below their offering price. Russia’s invasion of Ukraine didn’t help the market, and anticipation of the Federal Reserve’s raising of interest rates, which makes it more expensive for companies to borrow money, has further reduced risk appetites. Noting the change in the wind, “a slew of companies that had been readying themselves to go public have now opted to wait things out on the sidelines.”
This was inevitable, said Drew Singer in Bloomberg: “The market simply couldn’t maintain the pace of the year before.” At one point last month, two weeks passed without a single new U.S. listing, the longest drought since the Great Recession. Bankers are now “praying for some stability to breathe life back into the market,” and several market-ready companies, including Reddit and Chobani, are stuck waiting until “the right moment comes.” But with ongoing “volatility from Ukraine, faster inflation, and rising interest rates,” there is a foreboding sense that they are in for a prolonged dry spell. Some bankers are using the IPO freeze as an opportunity to reset, said Corrie Driebusch in The Wall Street Journal. “Unprofitable companies with big growth ambitions” like Rivian and Robinhood were emblematic of the typical IPO in 2020 and 2021—and they “have posted billions of dollars in losses” since going public. Now bankers are asking prospects: Do you make money?
SPACs—or so-called blank-check companies—may have contributed to poisoning the water, said Jonathan Guilford in Reuters Breakingviews. Last year’s craze for special-purpose acquisition companies (firms that raise capital on the promise that they will merge with an auspicious startup) skirted the traditional IPO model and raised billions “on promises of profits half a decade away.” Issuances have “tumbled since October,” when Digital World Acquisition announced a deal with Trump Media & Technology Group, the company behind the former president’s amateurish social-media app. Last week, the Securities and Exchange Commission proposed new rules aimed at protecting SPAC investors, but as usual “the regulators are late to the party.” Enthusiasm for new offerings is gone, and “the market’s deep freeze is a bigger problem than just about anything the government might do.”