After swinging from pessimism to near euphoria earlier this year, the outlook for the US IPO market is tumbling into turmoil.
(Bloomberg) — After swinging from pessimism to near euphoria earlier this year, the outlook for the US IPO market is tumbling into turmoil.
Dealmakers are preaching patience just weeks after a push to accelerate the timelines of some listings as investors come to terms with the prospect of interest rates staying higher for longer following hotter-than-expected inflation data.
“In December, the pessimism was off the charts,” said Barrett Daniels, IPO services co-leader at Deloitte & Touche. “Fast forward to late January and it’s like the pendulum had swung and everyone’s optimistic that things are going to open up before we know it. Here we are a couple weeks after that and it’s utter confusion again.”
To end the roller-coaster for dealmakers of the last few months, the IPO market needs more certainty around rates after last year’s historically light activity. But there was little sign of that Thursday as the more hawkish environment sent stocks and bonds lower.
Despite the recent downturn in market conditions, which includes a 3.3% drop in the S&P 500 since the start of February, stocks remain up 2.7% for the year, a big enough rally that some names in the pipeline can get excited about second-half listings. But that could look less like a flood and more like a primer for the rest of the pipeline to eventually follow in 2024, Daniels said.
The change in outlook was apparent this week at the Goldman Sachs Group Inc. investor day, where CEO David Solomon toned down his call for a dealmaking comeback this year.
“I think you’ll see some improvement in capital markets activity, particular in the back half of the year,” Solomon said — six weeks after predicting meaningfully better revenue for investment bankers in the second half. “What will effect that is how this economic scenario, which I would still gauge as uncertain, pans out.”
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Sixteen US IPOs priced in February, according to data compiled by Bloomberg, raising $2.1 billion in total. That’s an uptick from earlier this winter, but just a fraction of what’s been normal over the past decade. Almost 40 IPOs priced during that period last year, raising more than twice as much cash, while 138 IPOs raised $47 billion in February of 2021.
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