US IPO hopefuls are looking for signs of an elusive market window

(Bloomberg) — Some of the big-name startups expected to go public earlier this year have slowed their rush to market as stocks continue to slide.

Companies including Reddit Inc. and Cohesity Inc. have discussed listing shares starting in the first quarter of 2022, people familiar with the matter said. Although both have submitted the documentation for an initial public offering, neither has taken the next steps to debut in the market. With less than a week to go until the end of March, any attempt to go public is still a long way off, for them and dozens of others who have been keeping an eye on US listings.

While Reddit hasn’t postponed its plans (IPO timelines are rarely set in stone until a company starts trading its shares), the social media platform is unlikely to go public before May at the earliest, they said. people familiar with the matter. Even then, the decision will depend on whether stock markets, already rattled by inflation, have stabilized after weeks of volatile trading that intensified when Russia invaded Ukraine last month.

Representatives for Reddit and Softbank Group Corp.-backed Cohesity, which filed a confidential IPO application in December, declined to comment.

What is clear is that market-ready companies, and the bankers who advise them, are eager to leave as soon as the time is right. The firm of a stock market participant told clients in a note last week that signs of an opening were emerging and they should be vigilant, said the person, who asked not to be identified because the information was private.

Among the companies lining up to make their debut when conditions improve: online sneaker exchange StockX, Intel Corp. spinoff Mobileye and two companies owned by Bausch Health Cos., a contact lens maker and a medical aesthetics. Meanwhile, yogurt maker Chobani Inc., which filed its initial public offering in November, isn’t likely to go public until later this year or 2023, Bloomberg News reported.

‘Ready to go’

So-called IPO windows largely depend on how companies believe their shares will be received, and market conditions are often cited as the general reason for delays when investors’ risk appetite declines.

Bausch Chief Executive Joe Papa, for example, said on March 9 that the two units the company plans to spin off in IPOs were “ready to go,” and that he just needed to make sure “that we’re in the right market.” . terms.” He said at the time that the window could come in the next two to four weeks.

The Nasdaq Composite Index, which capped 2021 with a 21% annual gain, is down almost 10% since the start of the year, with daily rallies and sell-offs giving little clue to its long-term trajectory. Tech heavyweights including Meta Platforms Inc., PayPal Inc. and Netflix Inc. are down more than 30%, with the founding CEOs losing billions of dollars in personal wealth.

Newly listed companies are faring no better. Electric vehicle maker Rivian Automotive Inc. surpassed a $150 billion market valuation shortly after going public last November. It is now worth less than $42 billion. Against that backdrop, it’s easy to see why the next class of IPO hopefuls has slowed down.

“The performance of some of the 2021 IPOs, coupled with global uncertainty, has given the investment community a bit of a pause,” said Heidi Mayon, a partner at the law firm Goodwin Procter who has worked on IPOs, including the listing of DoorDash Inc. “There are still a substantial number of companies preparing to go public this year. I would expect to see the IPO market come back this year and early next year.”

Even before Russia’s invasion of Ukraine rocked markets around the world, IPOs had slipped from record highs last year, particularly in the US. Blockbuster’s listings have all but vanished.

market reopening

TPG Inc.’s $1.1 billion January listing was the only U.S. listing, and one of only five globally, to break 10 figures this year, according to data compiled by Bloomberg. That doesn’t include seven blank check companies that raised $1 billion or more. The general IPO market is paralleling the decline in major listings, with the first three months of 2022 on track to be the worst quarter since 2016.

Still, the next six weeks could provide reason for hope, at least if past market declines are anything to go by.

During periods of financial crisis or geopolitical instability, the IPO market tends to close for 80 to 150 days, analysis from Bank of America Corp. shows.

“At this point, we’ve been closed for almost 90 days, so we’re getting to the point where precedent would suggest we might reopen,” said Gregg Nabhan, president of equity capital markets at Bank of America.

What everyone is waiting for, according to IPO advisers, is a surefire frontrunner who can persuade wary investors that it’s time to open their wallets. That means an established, well-understood, and fairly large company that is also, crucially, profitable: a very different profile than many of the tech startups that floated during last year’s IPO boom.

Databricks Inc., a Microsoft Corp.-backed software maker, had initially prepared to go public in the first half of 2021, shortly after rival Snowflake Inc. made its debut, Bloomberg News reported. Last month, its CEO said those plans are still ongoing.

The volatility in the stock market “does not affect the timing of the IPO,” Ali Ghodsi said in an interview, expressing a divergent view from many of his peers. “We are on a long journey.”

Once the IPO market is up and running again, there will be no shortage of companies that have, at least privately, signaled their intention to try going public this year. Delivery startup Gopuff is working with banks on a listing that could come as soon as this year, as are Rihanna’s lingerie firm Savage X Fenty, online marketplace Zazzle Inc. and furniture brand Serena & Lily Inc.

©2022 Bloomberg LP

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