Will the Russia-Ukraine war, Fed rate hikes disrupt the IPO market?

After a record-setting 2021, the IPO market has had a much more challenging start to this year — and the Russia-Ukraine war has only further complicated companies’ decisions to go public. Twenty-one companies listed via…

traditional initial public offering (IPO) in the U.S. for the year-to-date March 11, according to data from Dealogic. That’s down 69% from the 68 companies that went public domestically over the same period in 2021. And the total deal value for companies going public via IPO this year has come in at just over $2.3 billion, a fraction of the $32.6 billion in the same period last year.

The drop among SPAC listings has been even more pronounced. Listings via SPAC, or special purpose acquisition company (SPAC), became the predominant vehicle through which companies went public last year: More than 250 SPACs had already taken place by mid-March 2021, with a total deal value of $81.7 billion. But so far this year, SPACs came in at just 51, with a deal value of $9.5 billion.

Many of the same factors that have weighed on the broader markets in 2022, including inflation and the specter of a series of interest-rate hikes from the Federal Reserve, have also dampened the IPO market out the gate for this year. Both the S&P 500 and small-cap Russell 2000 — regarded as a better gauge of performance for newly public companies — have fallen by more than 11% year-to-date. And the Renaissance IPO exchange-traded fund (IPO) has slumped by more than 30% as investors rotated away from riskier high-growth companies.

The “2022 IPO activity has been weighed down by poor returns and volatility, grinding to a halt in late February. Many of the best-performing IPOs in recent years have been hit hardest by the recent sell-off,” according to a Renaissance Capital blog post. “Over two-thirds of IPOs since 2019 (530 of 775) are down 50% or more from their 52-week highs.”

‘The pipeline is strong’

While U.S. IPO issuance has taken a turn lower this year, demand to go public has remained elevated, according to a number of pundits.

“The pipeline of companies wanting to go public is extremely strong. And it’s as strong, if not stronger, than it was last year if you look at the S-1s on file that have chosen to come to Nasdaq,” Nasdaq CEO Adena Friedman told Yahoo Finance’s Brian Sozzi last week.

“But at the same time, the market needs to be open and available to them and investors need to be excited to take risk. And right now the political and economic environment is more uncertain,” she added. “So even though the pipeline is strong, a lot of companies are waiting until the second quarter to consider coming to the public markets.”

And indeed, the IPO market of 2022 has yet to see the kind of splashy, high-profile listings that characterized the market over the past several years. Last year, electric-vehicle maker Rivian (RIVN) set the record for the largest U.S. IPO in 2021 and the seventh-largest domestically to-date. That IPO followed more recognizable names like Robinhood (HOOD), Bumble (BMBL), Oatly (OTLY) and Coinbase (COIN), which made their public debuts earlier in the year.

According to PwC IPO Services co-leader David Ethridge, it is because of the exceptional IPO environment of 2021 that the year-over-year comparisons alone create a…

 

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