Stock price rise in U.S. IPOs halves

Investors no longer scramble to invest money in initial public offerings in the United States, reducing the chances that a company will be able to price its shares above expectations or profit from a strong “Pop” of its shares on the first day of trading.

New figures show that the IPO market has cooled significantly since a scorching first quarter, as shares of recently floated companies have fallen and some high-profile debuts have flopped.

In January and February, shares of companies joining the New York Stock Exchange or Nasdaq rose on average more than 40% from their IPO price on the first day of trading, according to data from Dealogic.

In March and April, the average pop had fallen closer to 20 percent, and in May, it fell again to 18 percent on average in the middle of last week. The data excludes IPOs of Special Purpose Acquisition Companies (Spacs), which nearly dried up after regulators cast a veil on the market.

Most companies are still making progress in their early days in the market, but over the past few weeks a number of new entrants to the public market have slipped on day one of trading. Chinese insurance technology group Waterdrop fell 19% in its early days, while Vaccitech, the company that owns the technology behind the Oxford / AstraZeneca coronavirus vaccine, fell 17%. Biotech firm Talaris Therapeutics slipped 4.4% when it debuted in early May.

“It’s just not the ‘everyone wins’ market that it was in the first quarter,” said Rachel Phillips, partner at Ropes & Gray law firm in capital markets.

The pricing in the IPO itself has become more stringent as well.

In the first quarter, according to Refinitiv data, one in four US IPOs listed IPO shares above their expected range. The fourth quarter of last year was even hotter, when nearly 40 percent managed to beat their forks.

Since the start of the second quarter, the share of companies exceeding their price expectations has fallen to 11%, according to Refinitiv. Thirteen percent are posting prices below expectations – the highest share since at least the start of the pandemic.

“There was an incredibly optimistic market environment” at the start of the year, said Jeff Bunzel, head of equity capital markets at Deutsche Bank. In January, every US tech IPO priced above its range, he said. Now “there is a lot of room for the market to fall back[but]. . . it’s not that the IPO market is broken or in bad shape ”.

One month to the end of the second quarter, 54 companies have so far raised $ 18 billion. In the first quarter, 101 companies, excluding Spacs, raised $ 42 billion, the highest level of quarterly IPO proceeds during the pandemic, according to data from Refinitiv.

Investors have always been clamoring for certain IPOs.

Hospital scrub brand Figs, which joined the New York Stock Exchange on Thursday, valued its IPO at $ 22 – $ 3 above the high point of its range – then added 36% on its first day of trading. negotiation. The company’s stock rose another 14% on Friday.

“No matter where the market is, it was our time,” said Heather Hasson, co-founder of the company.

Others have been more sensitive to market conditions, with at least three companies citing volatile stock market trading in May as the reason they chose to delay their IPO.

“That’s the problem, when you do an IPO you are subject to the vagaries of the market,” said Tom McInerney, managing director of Genworth Financial, which was planning to divest its Enact mortgage insurance business during a IPO in mid-May. When concerns about price competition and inflation caused the sector’s shares to fall by more than 10%, the company decided to postpone its IPO until the last minute.

“We see it as. . . no luck, ”McInerney said.