U.S. IPO drought worsens in biggest recession since financial crisis

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(Bloomberg) – The U.S. new listings market has stalled and is now heading for its slowest period since the financial crisis more than a decade ago.

No company priced a traditional initial public offering last week amid the war in Ukraine, according to data compiled by Bloomberg, and the timeline is also blank for this week. It means the market is on track for its first two-week period without an IPO – apart from a holiday period – since 2009.

The lack of listings coincides with the broader market extending its sell-off following Russia’s invasion of Ukraine and the Cboe Volatility Index hitting its highest level since January last year. Moreover, recent listings have underperformed other stocks, with U.S. IPOs over the past year closing on average 30% below their offer prices on Monday, according to data compiled by Bloomberg.

In better times, the U.S. IPO market serves as the engine of the economy. Cash injections create jobs, fuel growth plans and finance acquisitions, while allowing public investors to participate in high-potential growth stories. Traditional IPOs raised nearly $200 billion last year alone, according to data from Bloomberg.

This year’s decline has dealt a heavy blow to the underwriting industry, BofA analysts wrote in a note on Tuesday.

“While bank capital markets earnings were expected to normalize in 2022, the decline in equity underwriting was staggering with the number of IPOs -51% down. year-over-year on an annual basis and revenue – 71% based on Dealogic data,” the memo reads.

Even in a market downturn, a single week without an IPO is rare. Last year, this only happened at the height of the August holiday season and again at Christmas. Consecutive weeks are even rarer – this last happened around the Labor Day holiday season in 2019. Excluding holidays, the U.S. IPO market hasn’t had two consecutive weeks without registration since the first quarter of 2009.

The window began to close in February on the prospect of higher US interest rates. After TPG Inc. launched the first major IPO of the year in January, the average deal size fell 80% in February compared to the previous month. The Renaissance IPO Index, which includes stocks that have gone public in recent years, closed Monday down 34% for the year. That’s on pace with the index’s worst year since its inception in late 2009.

Bitter sentiment has left special purpose acquisition companies as the only companies on the IPO calendar.

In the meantime, issuers are looking for solutions in private equity markets, University of Michigan professor Erik Gordon said in an interview.

“Stacks of private money make it easier to spend an extra year before tapping directly into public money,” he said. “It also makes it easier to misprice.”

Fanatics Inc. raised $1.5 billion in a private funding round at a $27 billion valuation, a person with knowledge of the matter told Bloomberg last week. The sporting goods retailer was previously seen as one of the top candidates to raise money via an IPO this year – a development that remains possible, but less likely.

Still, it may not be long before some life returns to the listings market. Australian software maker Locafy Ltd. on Monday set the terms for a U.S. IPO that is expected to be priced next week.

©2022 Bloomberg LP

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