The IPO Buzz: Quiet 4th of July After a Rough Ride

IPO bankers could not turn off their phones fast enough for the Fourth of July holiday weekend after enduring a rough ride for the first half of 2022.  No traditional IPOs from big banks are expected during this short holiday week. The U.S. stock market will be closed Monday, July 4, for the U.S. Independence Day holiday. A few small-cap deals are on the IPO Calendar for “week of July 5th” pricing after Wall Street returns to work on Tuesday from the holiday break.

The S&P 500 booked its worst start to a year since 1970, according to The Wall Street Journal. That’s all you need to know about why the IPO market is hurting.

“You have to have a healthy stock market for IPOs to work. That’s one of the first things I learned about IPOs from John Fitzgibbon,” a veteran IPO professional said, recalling the words of IPOScoop’s founder.

“You need more than an occasional up day here and there,” this IPO pro said.

On Friday, July 1, the three major U.S. stock indexes finished the session higher: The S&P 500 rose 39.95 points, or 1.1 percent, to 3,825.33, while the Dow Jones Industrial Average jumped 321.83 points, or 1 percent, to 31,097.26, and the NASDAQ Composite Index gained 99.11 points, or 0.9 percent, to 11,127.85.

In the Clutches of the Bear

For the week, though, the S&P 500 was down 2.2 percent. The broad S&P 500 has fallen for 11 of the past 13 weeks. For the year, the S&P 500 is down 21 percent – firmly in the grip of a bear market (defined by the Street as a drop of 20 percent from the most recent peak).

The NASDAQ Composite Index, the benchmark for IPOs, has been in a bear market since March. At Friday’s close on July 1, 2022, the NASDAQ was down 4.1 percent for the week and down 28.9 percent for the year.

For the tech-driven NASDAQ, the second quarter of 2022 was its worst quarter since 2008, according to The Wall Street Journal.

The blue-chip Dow Jones Industrial Average on Friday, July 1, 2022, was down 1.3 percent for the week – and down 14.4 percent for the year.

Here’s a startling stat: On Friday, May 27, 2022, the Dow Jones Industrial Average booked its eighth straight week of declines – its longest such streak since 1932, according to The Wall Street Journal.

Echoes of 2008

The evil three R’s – rising inflation, the risk of a recession and Russia’s war on Ukraine – are driving the fear in the U.S. stock market.

The toll on the IPO market is clear: Only 47 IPOs were priced in the first half of 2022, excluding 85 unit offerings consisting of stock and warrants. Of those unit deals, 70 were SPAC IPOs.

This performance is the worst since 2008, when only 32 IPOs were priced, IPOScoop records show – as the subprime mortgage crisis, Lehman Brothers’ bankruptcy and the stock market’s crash brought on the Great Recession.

For the first half of 2022, the IPO Scorecard showed that 12 of the 47 IPOs priced were up from their IPO prices, while 35 were down; the total return from issue price was -10.68 percent (negative 10.68 percent). In comparison, the NASDAQ Composite Index was down 28.55 percent for the year.

Ivanhoe Electric (IE) priced its IPO on June 27, 2022, at $11.75, the low end of its $11.75-to-$12.50 price range, and opened flat on Tuesday – only to close below its IPO price on its first day of trading, going down in the books as a broken deal, and to slide again on Friday. Ivanhoe Electric was the last IPO priced in June and the last one priced for the second quarter as well.

As the second half of 2022 begins, some Wall Street strategists and IPO investors see more pain ahead.

“I think we’ll have to wait and see what the Fed does this month,” a seasoned IPO trader says. “After the Fed makes its (next) move, we’ll have a better idea of whether IPOs will come back in September.”

Meanwhile, the IPO pipeline is still taking in deals, although the pace has slowed at the SEC’s filing window and most of the filings are small-cap deals. But one filing bucked that trend in the past week: Automotive battery maker Clarios International (BTRY proposed) revived its IPO, which some IPO pros peg as a $1 billion deal, although no terms were stated in the amended prospectus dated June 29, 2022. Flip the calendar back to last July: Clarios postponed its $1.7 billion IPO on July 29, 2021, just hours ahead of its expected pricing.

A small IPO from the parent of a Chinese medical equipment maintenance company – YUKAI Health Group Ltd. (proposed stock symbol “to be announced”) – and a tech-focused SPAC’s IPO – Trail Blazer Merger I Corp. (TBMCU proposed) – were the only new filings last week.

Stay tuned.

(For more information, please see: IPO Calendar – Click on the company’s name and the hyperlink will take you to the IPO Profile, which includes a link to the prospectus.)

(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.