Stubborn IPO lull defies supply and demand logic
10/07/2024 13:00
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Jeffrey Goldfarb
NEW YORK, July 9 (Reuters Breakingviews) - A glut of
inventory and a crowd of enthusiastic shoppers typically creates
a bustling marketplace. And yet the modern agora of corporate
stock sales sits oddly quiet. With supply and demand abundant,
the problem is price.
After two slow years, 2024 was supposed to mark the return
of initial public offerings. “Ready to launch,” partners at law
firm White & Case declared in one representative assessment.
Successful stock sales by social media site Reddit RDDT.N ,
cruise operator Viking VIK.N and skin-care products maker
Galderma GALD.S helped justify the optimism.
From January to June, however, market debutantes worldwide,
not counting shell companies, raised about $49 billion,
according to data provider Dealogic. The tally was 16% less than
in 2023 and the lowest since 2016.
Anticipated interest-rate cuts that didn’t materialize and a
dearth of Chinese issuers offer some explanation, but the
numbers remain perplexing. The S&P 500 .SPX and MSCI World
indices keep hitting all-time highs, an indication that
investors are prepared to buy riskier assets. They have plenty
of money to deploy, too. Almost $10 trillion, or 50% more than
at the end of 2020, is parked in U.S. money-market funds and
cash-like certificates of deposit, based on Federal Reserve
data.
There’s also a backlog of stock to sell. Buyout shops are
sitting on more than $3 trillion of portfolio companies, per
research shop Preqin. As of September, they had been holding
them for a median of 5.4 years, beyond the industry’s comfort
zone.
One logical conclusion is that there’s a stubborn
disagreement over valuations. Private equity firm Permira
aborted an IPO for its luxury Golden Goose brand after pricing
shares at the bottom of an indicated range. Cybersecurity
provider Rubrik RBRK.N and genetic testing company Tempus AI
TEM.O both trade below offering prices set earlier this year.
With companies raising more money privately from fund
managers, there’s often less value left when going public. Of
the nearly 400 companies that raised at least $5 million at a
$50 million valuation on U.S. markets in 2021, 84% of the stocks
can be bought for less than their issue price, according to IPO
research outfit Renaissance Capital.
The queue is growing nonetheless. Klarna’s CEO has said the
Swedish buy-now-pay-later outfit will go public soon, despite an
85% plunge in its valuation, to less than $7 billion in 2022.
OneStream, whose 2021 fundraising pegged the KKR-backed
financial software developer at $6 billion, also just disclosed
IPO plans. It may take until 2025 to find a new equilibrium, but
the iron law of supply and demand always takes hold.
Follow @jgfarb on X
CONTEXT NEWS
New issuers of stock, excluding special-purpose acquisition
companies, raised approximately $49 billion worldwide from
initial public offerings in the first half of 2024, according to
preliminary data as of June 24 from Dealogic. The amount was
about 16% less than the same six-month stretch in 2023 and the
lowest since 2016.
Spanish cosmetics and perfume company Puig raised $2.9
billion in April for the largest IPO of the half, followed by
the $2.5 billion raised in March by Swiss skin-care products
maker Galderma.
Total equity sales worldwide, including follow-on offerings,
SPACs and convertible bonds, in the first half were about $309
billion, a nearly 12% increase from the same span a year
earlier, per Dealogic.
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IPOs have been broadly lagging stock markets https://reut.rs/45SA2VM
Buyout firms own heaps of assets ready to sell Buyout firms own
heaps of assets ready to sell https://reut.rs/4corcBw
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(Editing by Jonathan Guilford and Pranav Kiran)
((For previous columns by the author, Reuters customers can
click on GOLDFARB/
jeffrey.goldfarb@thomsonreuters.com))