The financial press took aim at the IPO market last week, posting front-page stories about its poor performance since 2015. The supporting numbers looked like a plague had swept through Wall Street, but those stories left smiles on the faces of the investment professionals. The pros took this as a reverse indicator that the IPO market had hit bottom. When a financial story hits the front pages, that trend is a reverse indicator that the market has turned.
There was no shortage of reasons why the IPO market has floundered this year, but the main one was “market conditions.”
The bottom line is this: If you don’t have a good U.S. stock market, you will not have an IPO calendar. Let’s take a trip to yesteryear for comparisons between the past and the present.
The NASDAQ Composite Index, the barometer for the IPO market (*), closed on Oct. 31, 2007, at its then all-time closing high of 2,859.12 – just a few months before the financial storm of 2008. The Nasdaq then sold off to its most recent closing low of 1,268.64 on March 9, 2009 – DOWN 55.6 percent in the 16 months after hitting its closing high.
The IPO calendar of October 2007 produced 34 deals, according to the U.S. Securities and Exchange Commission filings. Fast forward to March 2009, when the IPO calendar produced just one deal. A grand total of three IPOs were priced from September 2008 through March 2009.
From April 2009 to the end of that year, a total of 61 IPOs were priced and traded.
What were the market conditions behind the NASDAQ’s plunge? The Great Recession was one.
(*) The technology-laden NASDAQ Composite Index has traditionally been used as the barometer for the IPO market. In past years, most companies going public were in the technology sector, and most were listed on the Nasdaq.
The NASDAQ Composite Index reached its closing high for 2011 on April 29 at 2,873.54, and sold off to its closing low of 2,335.83 on Oct. 3, 2011 – DOWN 18.7 percent five months after hitting its high for the year.
The April 2011 calendar produced 20 IPOs. In contrast, the calendar in October 2011 produced only three IPOs.
What happened in the month after the NASDAQ slid to its closing low of 2011? The calendar in November 2011 produced 17 IPOs.
To put this in perspective, let’s review the market conditions that prevailed in 2011: The European financial crisis dominated the headlines, with developments such as Greece, Italy and Spain going bankrupt.
The NASDAQ Composite Index ended at its all-time closing high on July 20, 2015, at 5,218.86. It sold off to a closing low of 4,266.84 on Feb. 11, 2016 – DOWN 18.2 percent just seven months after reaching its record closing high.
The calendar of July 2015 produced 23 IPOs. Let’s zoom ahead to January 2016: No IPOs were priced during that month. The calendar in February 2016 has produced only four IPOs to date.
Although most Wall Street pros need no reminders of the market conditions that have roiled the stock market this year, let’s put them out there just for the record: Concerns about an economic slowdown in China, falling oil prices, rising interest rates and worries about the chances of a worldwide recession.
From what we saw during the U.S. stock market’s slides in 2008 and 2011, the calendar started turning out IPOs shortly after the stock market bottomed out. And today’s pipeline is loaded.
The current reading has about 135 companies in registration waiting to go public. They are expecting to raise about $21 billion. Among them are some of the most famous unicorns with individual valuations of $1 billion or more. CB Insights reports that there are about 153 unicorns dancing around out there with a total valuation of about $53.6 billion.
All of these deals will be sailing into a buyer’s market.
Houston SPAC Ready for Lift-Off
This week has only two deals. One is a small-cap carryover from past weeks and the other one is a new face at the IPO window. It is Silver Run Acquisition (SRACU – proposed), a “blank check” or special purpose acquisition company, otherwise known as a SPAC.
Based in Houston, Silver Run Acquisition will have about $400 million after the IPO to invest in or acquire companies in the energy sector.
And then we are into March.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.