The IPO Buzz: Brexit Shock and IPOs

A 600-point freefall in the Dow Jones Industrial Average is significant – and Friday’s 610.32-point loss on the Brexit vote made it the eighth-largest ever. In terms of points, the granddaddy of them all was the Dow’s 777.68-point loss on Sept. 29, 2008 – two weeks after Lehman Brothers collapsed. So the shock of Britain’s vote to leave the European Union – measured by the Dow’s point drop alone – did not top the Lehman fallout in 2008. In terms of percentage, Friday’s loss was 3.39 percent, not even within shouting distance of the Dow’s top 20. That’s right, not even in the top 20. No. 20 was the Dow’s 6.98 percent loss on – guess what? – Sept. 29, 2008. In terms of percentage, the granddaddy of them all was the Dow’s 22.61 percent drop on Black Monday on Oct. 19, 1987.

The big question is: Where does that leave today’s IPO market?

The answer: Pretty much the same as in the past when volatility ruled. It’s now a waiting game for the U.S. stock market to stabilize itself. It is not the end of the IPO market – and it never was.

2008 Revisited

The September 2008 bankruptcy of Lehman Brothers sparked some highly volatile days for the U.S. stock market. Three of the Dow’s four biggest single-day point gains came between October and November 2008 – and four of the Dow’s five biggest single-day point losses came between September and December 2008. You just don’t get traction in the IPO market under such volatile conditions in the underlying stock market.

Note: Only one IPO was priced between September and December 2008, according to the U.S. Securities and Exchange Commission filings.

By the end of 2008, the Great Recession had come to town – the unwanted guest smuggled in by the financial crisis triggered by the unraveling of the subprime mortgage bond market. The IPO market went into hibernation. That wasn’t the end of the story.

In 2009, the U.S. stock market began a long slow recovery after March 9, when the Dow hit a 12-year low at 6,547.05 and the S&P 500 Index closed at 676.53, its lowest since Sept. 12, 1996.

It took about a year for the IPO market to come back. During the fourth quarter of 2009, 33 of the year’s 63 IPOs were priced.

1987 – Black Monday Hangover

Now let’s reach back deeper into the past to look at 1987. The impact of the 1987 stock market crash was not as harsh for IPOs as the fallout from the subprime mortgage bond crisis of 2008. After the stock market crashed on Black Monday, Oct. 19, 1987, the IPO machine slowed down – but it didn’t stop. November and December 1987 produced 16 IPOs – and 1988’s calendar went on to turn out 291 IPOs. Nevertheless, that was still down sharply from 1987’s total volume of 556 IPOs.

2016 – Beyond Brexit

From the standpoint of today’s IPO market, if unstable market conditions must be faced – now is not a bad time for it. This week’s calendar has seven names and then we run into one of the traditional down times in the IPO year. It is the July 4th break.

June’s final week of seven deals has two new faces on the calendar plus two small-cap offerings and three carryovers from last week. The new faces are:

Global Medical REIT (GMR – proposed), is a Bethesda, Maryland- based real estate investment trust (REIT) engaged primarily in the acquisition of licensed, state-of-the-art, purpose-built healthcare facilities and the leasing of these facilities to leading clinical operators with dominant market share.
Bankers plan to price 9.1 million shares at $10 to $12 each on Tuesday evening, June 28, to trade Wednesday morning, June 29.

Syros Pharmaceuticals  (SYRS – proposed), is a Cambridge, Massachusetts-based biopharmaceutical company that has built a proprietary gene control platform. The company says its platform is “designed to systematically and efficiently analyze this unexploited region of DNA in human disease tissue to identify and drug novel targets linked to genomically defined patient populations.” Its leading product candidates target leukemia, according to the prospectus.

Note: Certain existing investors have indicated an interest in buying up to $35 million worth of common stock in this offering.

Bankers plan to price 4 million shares at $14 to $16 each on Wednesday evening, June 29, to trade Thursday morning, June 30.

Collectively, the seven IPOs look to raise about $294 million – and then it is off for the three-day Fourth of July weekend.

Looking into the week of July 4, the IPO calendar is right in step with tradition – clean and green for the national holiday.

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 opinion.