In a year of record-setting initial public offerings, some companies are taking the initial part a little too seriously.
New data shows shares in almost half of all companies that raised $1 billion or more through an IPO this year are now trading for less than their debut price. It’s the latest indication that private company valuations are more sizzle than certainty.
PO’d by These IPOs
Global equity markets have had a record-setting year. Stocks on America’s blue-chip S&P 500 index, for instance, have returned 24% so far in 2021. There has also been a wave of IPOs, which, according to EY, have raised over $330 billion this year, many of them through once-ballyhooed SPAC mergers.
So with markets doing great and all these new companies trading on them, you’d think the novel entrants would be having a fabulous year. Well, think again:
- Data from Dealogic shows 49% of this year’s 43 IPOs that raised $1 billion or more are trading below their issuance price, compared to 33% in 2019 and 27% last year.
- Some high-profile IPOs have turned out to be duds: food-delivery app Deliveroo (seemingly made for pandemic times) fell 26% on its first day and hasn’t rebounded; Chinese ride-hailing app Didi Chuxing is down 40% since its debut; and Indian fintech giant Paytm fell over 40% in its first two days of trading.
Paying for the Price: Firms often seek high valuations to raise their profile and attract more cash, but it doesn’t always work out. According to the Financial Times, Paytm was done in by its management’s insistence it set a record for an Indian IPO. Some conservative investors then sat it out, and, when hedge funds ended up with more stock allocations than expected and dumped their excess holdings, the price tanked.
Swings and Misses: Goldman Sachs has been the lead banker on 13 IPOs that raised over $1 billion this year, but nine are in the red, including Didi and trading platform Robinhood. Rival Morgan Stanley, which handled Paytm, had six of its 14 deals turn sour.