The IPO Buzz: 2019’s Electric First Half

The IPO market roared into June’s final week with all the thunder and lightning it had mustered over the past month. Ten IPOs were priced, 13 companies filed plans to go public, and another five updated their earlier filings. But due to the July 4th Holiday this week, there is no IPO Calendar.

Many financial news outlets will be reporting various numbers to describe the IPO market’s state of play in the first half of 2019. The IPOScoop data show Wall Street priced 111 IPOs that raised $41.1 billion. These figures include blank check offerings (unit offerings) and a special type of offering known as a DPO. (More on that in a moment.) By most measures, the IPO market turned in an excellent performance in the first six months of 2019. Of course, it had the winds of a strong U.S. stock market at its back. The first-half 2019 performance of the S&P 500 was the best since 1997, according to The Wall Street Journal.

But the number of IPOs priced so far in 2019 trailed 2018’s first six months, when bankers priced 123 IPOs that raised $33.2 billion. What caused the slowdown in 2019 volume, in terms of the number of deals priced, was the U.S. government’s shutdown this winter. The federal government was closed from Dec. 22, 2018, until Jan. 25, 2019, making this the longest shutdown in the country’s history. The U.S. Securities and Exchange Commission was operating with just a skeletal staff so the pace of approving IPOs slowed dramatically during the shutdown.

A Second Look at Slack

June 2019’s traffic encountered a new word – direct public offering, also known as a DPO. Some services did not cover this deal, claiming it was not an initial public offering. That idea and the lack of coverage had some grounding in the truth.

What we know about the Slack Technologies (WORK) offering was that insider shareholders offered 118.4 million shares to the public and the stock started trading on the New York Stock Exchange at $38.50. Insiders got the proceeds. The buyers paid $38.50 a share for the stock.

Now here is a little background. CNBC reported this on June 19, 2019: “A reference price is not an offering price. It is not an opening price. That number will be determined by the designated market maker, based off the collection of a figure where buy offers can be met with sell orders.” In Slack’s case, that number was $38.50, not the $26 reference price.

Slack’s prospectus said, “Based on information provided by the NYSE, the opening public price of our Class A common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers. Based on such orders, the designated market maker will determine an opening price for our Class A common stock in consultation with a financial advisor pursuant to applicable NYSE rules. For more information, see the section titled “Plan of Distribution.” “

Nevertheless, the news media reported that Slack’s offering was a great success because the opening price was $38.50, up from the initial reference price of $26. And these news outlets followed up by saying that investors should expect more direct public offerings to come to market.

For the record, Slack started trading on Thursday, June 20, 2019, at $38.50 on the NYSE. The stock hit an intraday high at $42, slipped to an intraday low at $38.25, and closed its opening day of trading at $38.62, up 12 cents. On Friday, June 28th, Slack closed at $37.50, down $1 from its first trade on its opening day, which was its offering price.

Wall Street tells us you have to do better than lose $1 a share to get investors to buy into a new type of offering.

Spotify Redux

Let’s take a look at the previous DPO.

Spotify Technology (SPOT) was the other direct public offering. It didn’t do all that well in the aftermarket. On April 3, 2018, Spotify investors sold 55.7 million shares of Spotify to the public. The stock started trading on the New York Stock Exchange at $165.90. The reference price was $146.22. Spotify’s stock hit an intraday high at $169, slipped to an intraday low at $148.26, and closed its opening day of trading at $149.01, down $16.89 from its opening trade, also known as its offering price. On Friday, June 28, 2019, Spotify closed at $146.22, down 11.9 percent from its first trade, aka offering price, on April 3, 2018.

A Quiet Fourth

The IPO Calendar is blank for the first week of July. This week will be cut short by the observance of the U.S. Independence Day holiday on July 4, 2019, which will fall on Thursday.

But anything can happen when the SEC’s filing window opens again for business on Monday morning.

Stay tuned.


Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.