Pop’s stock price in US IPOs halved

Investors are no longer falling for themselves to put money into initial US public offerings, reducing the chances that the company will be able to price its shares above expectations or enjoy a big “pop” share price on the first day of trading.

The new numbers show that the IPO market has been largely down since a frenetic first quarter, as shares in recently floated companies drifted and some notable IPOs fell.

In January and February, shares of companies affiliated with the New York Stock Exchange or Nasdaq rose on average more than 40 percent from their initial public offering price on the first day of trading, according to data from Dealogic.

In March and April, the average population fell by nearly 20 percent, and in May it fell even more, to 18 percent in the middle of last week. The data excludes IPOs of special purpose buyouts (Spacs), which have come close to drying up after regulators cast a shadow over that market.

Most companies are still rising on their first market debut, but in the past few weeks, the number of entrants into the general market has declined on the first trading day. Chinese insurance technology group Waterdrop fell 19 percent when it debuted, while Vaccitech, the company that owns the technology behind the Oxford/AstraZeneca coronavirus vaccine, lost 17 percent. Biotech company Talaris Therapeutics fell 4.4 percent on its debut in early May.

“The ‘everyone-wins’ market wasn’t what it was in the first quarter,” said Rachel Phillips, partner at Ropes & Gray’s Capital Markets Practice.

Pricing in the IPO itself has also become tighter.

In the first quarter, one in four companies went public in the United States above the expected range, according to Refinitiv data. The last quarter of last year was even hotter, when nearly 40 percent managed to beat their ranges.

Since the start of the second quarter, the share of companies that beat their pricing expectations has fallen to 11 percent, according to Refinitiv. Thirteen percent are pricing below expectations — the highest since at least the beginning of the pandemic.

“There was an incredibly optimistic market environment” at the start of the year, said Jeff Bunzel, head of capital markets at Deutsche Bank. In January, he said, the price of every technology IPO in the US was above its range. Now, “there is plenty of room for the market to fall back[but]. . . It doesn’t mean the IPO market is broken or in poor shape.”

The vertical graph of prices has fallen increasingly in line with expectations (the number of IPOs) showing lower prices for US IPOs outside the expected range

With one month left in 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 underwriting revenue during the pandemic, according to data from Refinitiv.

Investors are still calling for specific IPOs.

Hospital massage brand Figs, which joined the New York Stock Exchange on Thursday, priced its initial public offering at $22 — $3 above the highest point in its range — and then added 36 percent on the first day of trading. The company’s stock rose another 14 percent on Friday.

“No matter where the market is, it’s time,” said Heather Husson, co-founder of the company.

Others were more vulnerable to market conditions, with at least three companies citing volatile stock market trading in May as the reason they chose to delay their initial public offerings.

Tom McInerney, chief executive officer at Genworth Financial, which had been planning to spin off the mortgage insurance business, told Enact in an initial public offering in mid-May. When concerns about price competition and inflation caused shares in the sector to plunge more than 10 percent, the company decided to postpone its initial public offering at the last minute.

“We look at it as . . . ” said McInerney.

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