The IPO Buzz: TPG Pops 15.3 Percent in its IPO’s Debut

Private equity powerhouse TPG, Inc. (TPG) jumped 15.25 percent on Thursday (Jan. 13, 2022) in its NASDAQ debut – to close at $34, up $4.50 from its $29.50 IPO price – and you could almost catch the sweet scent of relief washing over Wall Street after a nerve-wracking week. TPG priced its IPO at the mid-point of its $28-to-$31 range – on Wednesday night (Jan. 12, 2022) to raise $1 billion – with 33.9 million shares sold. IPO investors were watching TPG’s debut closely because this billion-dollar baby is the first big IPO of 2022. IPOs ran into turbulence this week amid investors’ concerns about rising interest rates and December inflation data showing the U.S. Consumer Price Index at 7 percent year over year – the highest since 1982. (Editor’s Note: This column was updated at midday on Friday with the week’s traffic.)

Cloud payrolls platform Justworks (JW proposed) – the only other sizable deal on tap this week – postponed its IPO “due to market conditions” early Wednesday morning, just hours ahead of its scheduled pricing after the close. That move wiped out this week’s anticipated double feature.  Investors’ worries about rising interest rates and inflation showed that these topics could be scarier than anything that Dr. Frank-N-Furter whipped up in his lab in the cult classic, “The Rocky Horror Picture Show.” (My favorite lyric from the opening song, “Double Feature,” is: “… and Flash Gordon was there in silver underwear … “)

Rising bond yields dumped more sleet on stocks on Monday morning after last week’s slide, when the NASDAQ Composite Index had its biggest drop since last February. The 10-year U.S. Treasury note’s yield briefly touched 1.8 percent on Monday, its highest level since January 2020, The Wall Street Journal noted, citing TradeWeb. The rout in the U.S. bond market on Monday reflected investors’ fears that the Fed might raise interest rates as soon as March. The NASDAQ Composite Index was down nearly 336 points at mid-morning, but it wiped out those losses by late afternoon and ended Monday’s session with a slight gain.

On Wednesday, the S&P 500 gained 13.28 points, or 0.3%, to 4,726.35, off 1.5% from its record last week, while the Dow Jones Industrial Average added 38.30 points, or 0.1%, to 36,290.32, and the tech-heavy Nasdaq Composite rose 34.94 points, or 0.2%, to 15,188.39, according to The Wall Street Journal.

Thursday’s trading flipped the script. Tech stocks led the three major U.S. stock indexes lower, pulling the Nasdaq Composite down 2.5 percent to 14,806.81, its lowest close since October, The Wall Street Journal reported.

Reality Check

For IPO investors, the issue of pricing is paramount after IPOs’ disappointing after-market performance during 2021’s record run.

“We can hope that they (bankers) will price these deals right,” a seasoned IPO investor says.

The mid-point pricing of TPG’s IPO may be a sign that Wall Street is taking a more realistic approach to valuations than it did last year, IPO professionals say.

TPG Inc. (TPG) had faced some criticism over the way it described its internal rate of return in the prospectus, according to Institutional Investor. For details, see:  In Letter to SEC, Critics Accuse TPG of Inflating Returns Ahead of IPO | Institutional Investor

But the impact of that criticism appeared to fade somewhat as institutional investors warmed up to TPG’s initial public offering this week. The key word here is dividend. TPG plans to pay its Class A common stockholders a dividend equal to 85 percent of its distributable earnings, beginning in the second quarter of 2022, the prospectus says.

Of the 33.9 million shares sold in TPG’s initial public offering, about 5.59 million shares were sold by an existing stockholder that is a subsidiary of China Life Insurance (Group) Co.

J.P. Morgan, Goldman Sachs, Morgan Stanley, TPG Capital BD, LLC and BofA Securities led the pack of 16 joint book-runners. All told, there were 23 banks involved in underwriting TPG’s IPO.

The company was founded in 1992 as the Texas Pacific Group by David Bonderman and Jim Coulter, who were both former financial advisors to Texas billionaire Robert Bass. Its first investment operations were based in San Francisco, although the company’s executive offices are in Fort Worth, the prospectus says. TPG began investing in tech companies in the early 1990s when other buyout firms took a pass on the sector, according to Texas Monthly. Kathryn Jones, a writer for Texas Monthly, reported in “Barons of Buyout,” a story published in December 2000, that Bonderman, known for his rock and roll parties, “threw a private bash in March (2000) to celebrate” TPG’s raising of $4 billion in three months for two new TPG funds by “renting San Francisco City Hall and hiring the B-52’s rock band to entertain guests.”

Fast forward to the 12 months that ended Sept. 30, 2021: TPG reported net income of about $2.31 billion on revenue of about $5.45 billion.

With $109 billion in assets under management, TPG becomes the fourth-largest publicly traded private equity fund – ranking behind Blackstone, The Carlyle Group and KKR, according to Bloomberg.

As Aaron Elstein of Crain’s New York Business noted this week about private equity firms’ IPOs: “They go public because most leveraged-buyout funds expire after 10 years and money is returned to investors, but an IPO means raising capital that’s never given back.”

TPG’s business, in addition to its private equity investments, includes hedge funds, real estate and its own SPAC platform.

SPACs and Small Deals 

SPACs dominated the traffic this week, when bankers raised $3.036 billion from 12 deals. This total does not include the Yoshitsu IPO (details below).

Nine SPACs (special-purpose acquisition companies) priced their IPOs this week, raising about $2.01 billion. Among them was the automotive-focused SPAC, Andretti Acquisition Corp. (WNNR.U), whose management team includes legendary race car drivers Mario Andretti and Michael Andretti (father and son, respectively).

For 2022 so far, 13 SPACs – also known as blank-check companies – have been priced.

Eight other deals have been priced so far in 2022 – seven IPOs (including Yoshitsu) and one NASDAQ uplisting (Cerberus Cyber Sentinel Corp.)

A tiny IPO for Japanese online beauty products retailer Yoshitsu Ltd. (TKLF) – 6 million American Depositary Shares (ADS) at $4, the low end of its range – was priced over the weekend, the company announced in a press release dated Saturday, Jan. 8, 2022. Yoshitsu’s stock is expected to start trading on Tuesday, Jan. 18, 2022, on the NASDAQ, Yoshitsu said in a separate press release dated today (Jan. 13, 2022). Univest Securities was the sole book-runner. Valuable Capital served as the co-manager.

A small-cap biotech IPO for Hillstream Biopharma (HILS proposed) from sole book-runner ThinkEquity – was priced on Tuesday night (Jan. 11, 2022) at $4, below its $5-to-$6 range. The deal’s size was increased to 3.75 million, up from 3.0 million initially. Hillstream Biopharma’s stock slipped at the opening trade on NASDAQ and closed below its IPO price, winding up as a broken deal.

On Thursday night, Jan. 13, 2022: Cerberus Cyber Sentinel Corp. (CISO) priced its small-cap NASDAQ uplisting of 2 million shares at $5 each to raise $10 million.

Next week’s IPO Calendar looks light so far, with a REIT, a bitcoin miner’s IPO and a few small-cap deals.

Stay tuned.

(Never trade on proposed symbols. You might wind up owning something on the OTC Bulletin Board.)

Disclosure: Nobody on the staff has a position in any stocks mentioned above, nor do they trade or invest in IPOs. The staff does not issue advice, recommendations or opinions.

Disclaimer: A SCOOP Rating (Wall Street Consensus of Opening-day Premiums), is a general consensus taken, at press time, from Wall Street and investment professionals concerning how well an IPO might perform when it starts trading. The SCOOP Rating does not reflect the opinions of anyone associated with The SCOOP ratings should not be taken as investment advice. The rating merely reflects the opinion of the professionals at the time of publication and is subject to last-minute change.