IPO prices are likely to be lower in 2022, experts say

Initial public offerings will be harder to value this year and their opening-day prices will be lower than expected, say veteran bookrunners, finance scholars, and merger and acquisition specialists. Macroeconomic and geopolitical events like the…

US Federal Reserve’s pending interest rate hikes, Russia’s invasion of Ukraine, a slowdown in IPOs following a boom in 2021, a recapitalisation of overpriced growth companies, and poorly structured deals are factors that could spell reduced prices in 2022.

“IPOs are harder to price this year than last,” Matt Kennedy, a senior strategist with US IPO research firm Renaissance Capital, told Capital.com.

He cited volatility as the cause. “Investors are more reluctant to bet on new securities when they’ve recently been burned.

“They tend to focus on managing their existing portfolios. Multiples have come down, so there is a wider disconnect between the valuations in the public market and the private market.”

Mid-point to be missed

Kennedy expects companies to set lower IPO prices, while more actual IPOs will fall below the mid-point of their estimated price ranges.

In February, IPOs averaged a minus 12% return when one micro-cap, Blue Water Vaccines, was not considered, said Renaissance in a client note that Kennedy provided to Capital.com. Blue Water’s IPO generated a 451% return, skewing the average.

“(This year) will be a more challenging year than 2021 to complete IPOs,” said Dan McClory, a veteran bookrunner with Irvine, California-based Boustead Securities. “I’m not jumping to some alarmist conclusions. It just will be.

“I think the underwriters who don’t commit unforced errors and shoot themselves in the foot win. Sub-optimal deal structures and a lack of advance planning on how (bookrunners and companies) are going to populate their IPOs, and want to leave it too long, those are going to be troubled. Those are going to be susceptible to great (pricing) difficulty.”

Bookrunners underwrite stocks

Bookrunners are underwriters who negotiate stock pricing estimates, ranges, and actual prices with companies before they go public, while guiding the firms through the IPO process and marketing and selling their shares. Lead bookrunners typically buy…

 

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