We are nearing the end of the second quarter of the year, and it has been unpleasant to say the least.
Inflation, rising interest rates and the war in Ukraine have caused a lot of volatility in the stock market, with the S&P 500 dipping into bear market territory last week. While last year was a record for both traditional IPOs and SPACs, 2022 so far has been pretty much the opposite.
I decided to check out the status of SPACs and traditional IPOs this year, and spoke to a couple of people in the know to get their thoughts on what to expect in the future. The general consensus: activity is quite sluggish and is not expected to pick up unless inflation numbers come down.
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So far this year, 38 SPACs have completed their mergers, according to SPAC Track, and 67 SPACs have had initial public offerings, according to SPAC Insider.
On the IPO front, 41 companies have weighed their offerings this year, according to IPOScoop.
For context, there were 613 SPAC IPOs last year with gross proceeds of nearly $163 billion, according to SPAC Insider. Another 399 traditional IPOs collectively raised $142.5 billion.
The stock market won’t start to calm down until there is a significant reduction in monthly inflation figures, according to Patrick Healey, founder and president of Caliber Financial Partners. He expects companies to resist going public until volatility in public markets subsides.
A ‘messy’ market
“This is as complicated as I’ve seen it,” Healey said, noting that he experienced both the dot-com boom and the Great Recession.
“If this continues, we won’t see much in the way of capital markets activity,” he said. “And I think that will be true for the rest of the year as the market digests the Fed’s activity, the midterm elections and the general slowdown in the economy.”
Healey also doesn’t expect SPAC activity to pick up, as market volatility reduces investors’ appetite to invest their money in a blank check company. SPAC targets also tend to be younger, less mature, aspirational, high-growth companies, and the market is not rewarding growth stocks.
We should also expect to see companies that want to go public via a traditional IPO (and believe me, there are plenty in the pipeline) also keep their plans on hold. Databricks and Stripe are just a few of the big names rumored to be candidates for the 2022 IPO before the market took a nosedive.
If they can afford to wait out the chaos in the public markets and raise money elsewhere, they will.
“Those tend to be companies that could easily grow in the private markets, so I think you’re going to see more and more of that,” Healey said.
The outlook for the rest of 2022
There are likely to be 80-100 IPOs this year if the market “holds up”, according to Josef Schuster, founder of Ipox Schuster. That’s pretty much in step with how things have been this year; There have been 41 IPO prices so far, with many of those companies being healthcare or biotech, according to IPO Scoop.
The current market sell-off is historically in line with what happens after a record year like 2021, Schuster said. “The market is catching up with reality,” he said. “Valuations can’t stay that high, especially if growth isn’t that strong. The market reaction is brutal, (with) Snap down 40% on Tuesday. There’s no margin of error”.
Schuster said there are some strategic benefits to going public in a bear market, so we could see some notable deals.
“Assuming the bear market doesn’t last forever, companies that manage to go public in a weaker market are usually a good sign of quality,” Schuster said.
Illustration: Dom Guzman
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