Record Year for IPOs Fails to Achieve Historic Returns

Initial public offerings have enjoyed legendary status as the asset class that outperforms the market. Not in 2021.

More than half of the 481 OPI Americans this year are trading below their offer prices, according to data compiled by Bloomberg. These operations, excluding an even longer list of Special Purpose Acquisitions (SPAC) companies, together set a record of around $ 167 billion, easily outpacing 2020.

Despite the historic volume, enthusiasm for IPOs has faded in the latter part of the year due to volatility and poor results. Although the first quarter of 2022 looks very active, a volatile year is expected ahead, negotiators say.

There is no doubt that 2021 had its highlights. Some 180 ventures-backed companies went public in the United States, bringing $ 512 billion in value to the stock market, according to data provider PitchBook. This is a sharp increase from 105 IPOs and $ 180 billion last year.

Among the ventures-backed companies is Rivian Automotive Inc., the electric truck maker that starred in the thirteenth-largest IPO of all time, raising $ 13.7 billion in November. A month after its debut, Rivian is trading 24% above its IPO price, even falling 10% last Friday after reporting that it would not meet production targets.

Meager earnings

Still, on a weighted average basis, the 2021 IPO class is up just 1.6%, according to Bloomberg data. For their part, the Nasdaq Composite and S&P 500 indices have gained 19% and 24%, respectively, despite the big drop last month.

With a one-year lead, the 347 companies that went public in EE.UU. in 2020 they have risen 46% with respect to their sale prices.

Among the poor results are two of the top five deals of the year. South Korean e-commerce giant Coupang Inc. is down 14%. Troubled Chinese private transportation company Didi Global Inc. is down 57%, erasing $ 35 billion in market value, and plans to withdraw its US shares amid pressure from regulators in China.

The macroeconomic consequences of inflation and supply chain disruption have also affected IPOs. What’s more, startups are turning to public markets earlier after a decade of avoiding them. Thanks to the SPACs, the timelines for companies to go public have sped up and that sentiment has carried over to the IPO market as well.

Higher growth

“The fastest growing trends that tend to be in the private market are also happening in the public market,” said Sumit Mukherjee of Bank of America Corp.

“Investors are likely to exercise greater value discipline following this year’s IPO performance,” Mukherjee said. “And companies will also be more disciplined around the valuations they will be willing to accept.”

Heidi Mayon, a partner at Goodwin Procter who has worked on the IPOs for DoorDash Inc. and Poshmark Inc., described the first half of 2021 as a race to go public.

“This year was the most tremendous year I have seen in my career in terms of quantity of quality deals,” Mayon said. “While some companies have stumbled a bit once they went public, there are still a lot of great performers.”

Mayon said he expects the long-term upward trend in prices to continue through 2022, though perhaps not at this year’s pace.

Looking ahead to 2022

More than 30 deals, including some that delayed their 2021 offerings, are expected to hit the market in January and February, said Nelson Griggs, president of the Nasdaq Stock Exchange.

Those agreements will set the tone for next year.

“If they go out and do well, then the first half of the year will be exceptionally good,” Griggs said. “If they have difficulties, the first half could be turned off.”