Manhattan’s finest restaurants are reopening fully after the latest wave of coronavirus. But tragically for the owners there are virtually no lavish closing fetes to celebrate completed initial public offerings. A record surge in 2021 allowed private equity houses and venture capitalists to offload unicorns and other fabulous beasts on to public markets.
But feast has turned to famine partly because many of last year’s listings have soured. Pending interest rate increases reawakened Wall Street’s slumbering scepticism.
The rout has worsened in 2022 amid inflation worries and the war in Ukraine. Excluding blank check vehicles, no company has listed in the US in nearly a month. This gives Wall Street a pause in which to ponder whether the 2021 gold rush was driven by an erosion in underwriting standards that allowed marginal business models to float on public markets.
The mean decline from listing price is a whopping 44 per cent among the 15 biggest IPOs by dollars raised in the US in 2021. The debutantes included were hyped high-fliers such as Rivian, Robinhood and Oatly. Rivian, which raised nearly $14bn at an equity value that eventually approached $100bn, is only beginning to manufacture electric trucks. Robinhood took advantage of the meme stock craze of 2020 but its long-term viability appears uncertain. Oatly’s milk substitutes are nothing special. Virtually all of these supposed growth plays are still losing hundreds of millions of dollars annually.
US IPO volume was roughly $50bn in both 2018 and 2019. By 2020, that figure ballooned to nearly $85bn before hitting $154bn last year, according to Dealogic. Even with the crush of listings in 2021, activity in the private market has been moving faster.
Data provider PitchBook has calculated VC firms had backed nearly 1,300 private companies globally, each worth more than $500mn by the end of 2021. Private market valuations, by definition, are insubstantial unless crystallised by a takeover or a float. In a tough market for IPOs, quick flips are no longer available to the Masters of the Universe.
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