Record-Setting Year for IPOs Fails to Deliver Historic Returns
Initial public offerings have enjoyed legend status as the asset class that outperforms. Not in 2021.
(Bloomberg) -- Initial public offerings have enjoyed legend status as the asset class that outperforms. Not in 2021.
More than half of this year’s 481 U.S. IPOs are trading below their offer prices, according to data compiled by Bloomberg. These deals, excluding an even longer list of special purpose acquisition companies, collectively set a record of about $167 billion, easily beating 2020.
Despite the historic volume, enthusiasm for IPOs has waned at the back end of the year because of volatility and lackluster performances. Though the first quarter of 2022 looks to be busy, expect a volatile year ahead, dealmakers say.
To be sure, 2021 had its highlights. Some 180 venture-backed companies went public in the U.S., bringing $512 billion in value to the stock market, according to data provider PitchBook. That was a sharp jump from 105 such IPOs and $180 billion in value last year.
The venture-backed companies included Rivian Automotive Inc., the electric pickup maker that delivered the world’s 13th-biggest IPO of all time, raising $13.7 billion in November. A month after its debut, Rivian is trading 24% above its IPO price, even with a 10% drop last Friday after reporting it would fall short of production goals.
Slim Gains
Still, on a weighted average basis, the IPO class of 2021 is up only about 1.6%, the Bloomberg data show. Meanwhile, the Nasdaq Composite and S&P 500 indexes have returned 19% and 24%, respectively, despite a major selloff in the past month.
With a one-year head start, the 347 companies that listed in the U.S. in 2020 are now up 46% from their offer prices.
The poor showings have included two of the year’s top-five offerings. South Korea e-commerce giant Coupang Inc. has fallen 14%. China’s troubled ride-hailing company Didi Global Inc. is down 57% -- destroying $35 billion in market value -- and is planning to delist its U.S. shares under pressure from regulators in China.
Macro consequences of inflation and supply chain disruption have also weighed on listings. Additionally, startups are tapping the public markets earlier after a decade of avoiding it. Thanks to SPACs, the timeline for companies to go public had accelerated and that sentiment spilled into the IPO market as well.
Higher Growth
“The higher growth trends that usually play out in the private market are also happening in the public market,” said Sumit Mukherjee, a Bank of America Corp. managing director.
“Investors are likely to exert more value discipline following this year’s IPO performance,” Mukherjee said. “And companies will also be more disciplined around what valuations they will be willing to accept.”
Heidi Mayon, a Goodwin Procter partner whose IPO work has included DoorDash Inc. and Poshmark Inc., described the first half of 2021 as a race to go public.
“This year was the most tremendous year I’ve seen in my career in terms of the number of quality deals,” Mayon said. “While some companies have stumbled a bit once public, there are still a number of great performers.”
Mayon said she expects the long-term upward trend in listings to carry into 2022, though perhaps not at this year’s pace.
Looking to 2022
More than 30 deals, including some that delayed their 2021 offerings, are expected to tap the market in January and February, said Nelson Griggs, president of the Nasdaq Stock Exchange.
Those deals will set the tone for the year ahead.
“If those get out and do well, then the first half of the year will do exceptionally well,” Griggs said. “If they struggle, the first half could be muted.”
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