With IPO interest on pace for its worst year in decades it came as a surprise that in August, the traditionally slow month with Europe on holidays monthly issuance hit double digits for the first time this year. There were 12 small IPOs issued, raising a combined $196 million. The largest deal raised just $36 million, and the median deal size remained low at $15 million.
Renaissance Capital said August IPOs averaged a return of over 1,000% from offer due to the first day of trading for uplisting Addentax Group, ATXG soared 13,031% from the offer price. Excluding that outlier, the other 11 averaged a -2% loss as explosive first-day gains were offset by heavy aftermarket losses.
July was very quiet for IPO’s after the miserable first half of the year for US stocks. However, July saw a rebound which no doubt brought about the rebound in August IPO issuance. Following the destruction that was June, July was a complete reversal for the major US stock indices which had their best month of the year. The NASDAQ was the standout rising 12.35% for the month. The Dow industrial average rose 6.73% and the S&P index rose 9.12% which was the best month since November 2020. A difference a month makes, the S&P 500 fell 20.6% through January to June 30, 2022, suffering its worst first half of a year since 1970 when it declined 21.0%.
August saw four blank check IPOs raise $312 million in August, and eight companies listed via SPAC merger. There were nine additions to the pipeline in August, led by a $150 million filing from a VC-backed biotech.
The Renaissance Capital IPO Index finished with a -2% loss, outperforming the S&P 500’s -4% decline; the IPO market started the month strong before selling off in the second half of the month as did the broader markets, accelerating after Fed Chair Powell’s policy speech with uncompromising inflation resolve at the Jackson Hole Economic Policy Symposium spiked the bear market or short covering rally.
IPO interest is on pace for its worst year in decades after the market crashing the IPO market has been in the doldrums. New companies have few options but to burn through cash while they wait for the stock market to calm.
August 2022 IPO Week’s in Review
“The IPO market is on pace for its worst year in decades, leaving fledgling companies with few options but to burn through cash while they wait for the stock market to calm. Late last year, hundreds of companies were in the final stages of preparing to go public, encouraged by the best 18 months ever for U.S. initial public offerings. Then a combination of factors—sky-high inflation, rising interest rates and Russia’s invasion of Ukraine—sent shock waves through the stock market. The IPO pipeline froze. So far this year, traditional IPOs have raised only $5.1 billion all told, Dealogic data show. Typically, at this point in the year, traditional IPOs have raised around $33 billion… Last year at this point, these offerings raised more than $100 billion.”August 22 – Wall Street Journal (By Corrie Driebusch)
Over the last month, a rising number of small deals have opted to offer warrants in their IPOs, either at the time of the initial filing or in a later amendment. In the context of an IPO, warrants give investors the right to purchase a new issuer’s stock at a specific price within a set time frame. That price is usually equal to or slightly greater than the offer price, and the time frame is often within five years after the IPO.
Warrants allow new issuers to both sweeten the pot for investors and provide an additional source of capital for themselves.
While offering warrants may help small deals get done in challenging conditions, it does not provide immunity from poor trading. From 2021 to date, issuers that have gone public after adding warrants are mostly underwater, averaging a -54% return from IPO.
Recent filers that have opted to offer warrants are all micro-caps and span a variety of industries. The group includes both companies filing for fresh listings, as well as those hoping to uplist from the OTC. Non-listed filers feature ramen restaurant chain Yoshiharu Global, Canadian psychotropics company Lucy Scientific Discovery, aquaculture company The tru Shrimp Companies, short-term rental provider CorpHousing Group, and agtech developer Opti-Harvest.
Source: Renaissance Capital
From The TradersCommunity Research Desk