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US IPOs: tired bulls wheeze after 2021 romp

Even the heartiest bull loses stamina eventually. For proof, look no further than the Pamplona-like runs for US initial public offerings.

After last year’s record-breaking performance, the outlook for the once exuberant market has waned. Only $1.8bn has been raised by 10 companies so far this year, a 90 per cent drop from the prior year period. More tellingly, 26 start-ups and special purpose acquisition companies have either postponed or cancelled their listing plans, according to Dealogic.

You can hardly blame them. Looming rate hikes and a stretch of decidedly mixed earnings from tech companies have dulled investor appetite for new issuances. The tech-heavy Nasdaq Composite notched its worst month in two years in January and has lost 10 per cent year to date.

A pullback is not necessarily a bad thing, if it leads to a sensible reset for IPO pricing. Years of easy money have driven valuations for lossmaking companies to new highs. While founders and early investors in these start-ups have enjoyed bumper paydays, investors in the Class of 2021 IPOs have largely been left with dismal returns.

Of the 396 companies that went public last year, nearly 80 per cent are currently trading below their listing prices. The figure excludes Spacs. Among the notable flops: shares in electric vehicle start-up Rivian Automative has fallen 65 per cent from its post-IPO high. Even worse, Oatly, the oat milk maker, has shed 76 per cent from its peak

More broadly, the Renaissance Capital IPO Index, which tracks issues for two years from their floats, is down by a third over the past 12 months. The S&P 500 has gained nearly a quarter.

Companies looking to list this year must expect more conservative pricing, and provide more realistic pathways to profitability. The mix of sectors is likely to change as well. Energy companies made up three-quarters of the top 20 S&P 500 January performers. Expect more shale oil drillers — rather than electric vehicle start-ups — to come knocking on the market’s door.

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