Analysis-U.S. IPO slowdown slams door on tech unicorns looking to cash out


NEW YORK (Reuters) – The get together is over for expertise start-ups dashing to go public at ever-higher valuations, as unstable U.S. inventory markets have dampened investor urge for food for high-growth shares.

A 6% drop within the S&P 500 index and a 75% rise in Wall Street’s worry gauge, because the Cboe Volatility Index is thought, because the starting of the 12 months have led many firms to push the pause button on itemizing plans.

Software startups WeTransfer and Justworks and bitcoin miner Rhodium Enterprise are among the many half-dozen firms that canceled preliminary public choices (IPOs) in January, citing adversarial market circumstances. Other postponed listings embody attire chain operator Authentic Brands Group, insurance coverage expertise start-up TypTap, and actual property funding belief Four Springs Capital Trust.

“You’re going to proceed to see most likely fewer offers launched than you in any other case would have if the market hadn’t gotten rather a lot choppier right here,” stated Eddie Molloy, co-head of fairness capital markets for the Americas at Morgan Stanley.

Most shares of 396 firms that went public in 2021, excluding particular objective acquisition firms, had been already buying and selling nicely under their flotation worth as traders frightened about frothy valuations — down 28% on common, in accordance to Dealogic.

January’s sell-off of expertise shares, pushed by the prospect that increased rates of interest will make traders extra risk-averse, additional spooked traders. The tech-heavy Nasdaq ended January practically 9% decrease than it began the month.

IPOs raised a complete of about $6.9 billion in January, down 83% from the identical interval final 12 months, in accordance to Dealogic

Companies with loads of development however little or no revenue to present had been snubbed first by IPO traders.

“The latest and anticipated strikes in rates of interest is forcing traders to re-value cash flows, development and danger, translating to a rotation away from the best development, riskiest belongings throughout sectors,” stated Andrew Wetenhall, co-head of fairness capital markets within the Americas at Morgan Stanley.

This raises questions in regards to the timing of main expertise choices anticipated this 12 months, together with Intel Corp’s autonomous automobile unit Mobileye, social media platform Reddit and supply startup Gopuff.

Should market volatility proceed, it may gain advantage direct listings on the expense of conventional IPOs, funding bankers say. In a direct itemizing an organization goes public with out promoting shares although underwriters, and its inventory market debut is much less susceptible to market jitters.


To be certain, IPO bankers and legal professionals have stated the pipeline for firms looking to go public in 2022 stays wholesome. Several expertise unicorns are nonetheless planning to go public within the second half of the 12 months.

“Markets detest uncertainty, so any alleviation of it ought to enhance the market backdrop, particularly for IPOs,” stated Michael Ventura, managing director at RBC Capital Markets.

Tech shares and the broader market rebounded this week, recovering shut to half of their losses in January and giving dealmakers hope the IPO setting will turn out to be favorable once more quickly.

Jimmy Baker, president of B. Riley Securities, stated the IPO market restoration might begin with firms that generate sturdy cash flows going public, as traders with little danger tolerance for loss-making unicorns are attracted to choices that promise to ship yield.

“There’s not a whole lot of receptivity to IPOs. (However), we anticipate within the close to future, there will likely be receptivity to yield-oriented alternatives,” stated Baker.

(Reporting by Echo Wang in New York; Editing by Anirban Sen and Leslie Adler)

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