The art of not being
How do you describe something that didn’t happen? Perhaps by what was missing: deal activity, proceeds, returns and investor confidence were nowhere to be found in the third quarter. Or perhaps it is best described by what it actually was: one of the slowest third quarters on record, dominated by a handful of micro-cap, pop-and-drop IPOs, delivering the lowest levels of third quarter proceeds in 15 years.
One thing is for sure—none of the normal metrics have meaning in this quarter. Average first-day returns hit nearly 700 percent with one Chinese garment maker enjoying a 13,031 percent pop (it ended the quarter down 43 percent from issue) (Renaissance Capital, Q3 2022). One single listing (Corebridge) accounted for a whopping 71 percent of the quarter’s total proceeds (Renaissance Capital, Q3 2022). Nine out of ten new listings finished the quarter below issue (Renaissance Capital, Q3 2022).
Sadly, the headline data for the quarter was actually a very slight improvement on the previous quarter. There were 25 new issues in 3Q (versus 21 in 2Q) and around $2.4 billion was raised (versus $2.1 billion in 2Q) (Renaissance Capital, Q3 2022). But, barring an unexpected late-year rally, the year is on track to be one of the worst for IPOs in more than three decades.
“With uncertainty remaining at all-time highs, investors have little appetite for new issues and the few notable listings that did happen in 3Q 2022 were met with significant volatility. Anyone who was thinking about perhaps going out in the fourth quarter will likely now have serious reservations. It is unlikely that the IPO window will fully reopen until at least the end of the first quarter of next year.” – Conor Moore, National Leader, KPMG Private Enterprise
U.S. IPO Activity – Quarterly
Source: Renaissance Capital US IPO Market 3Q 2022 Quarterly Review
Little to write home about
The bright light of the quarter, as it was, was the spin-off of AIG’s retirement services and life insurance business as Corebridge Financial (Renaissance Capital, Q3 2022). Raising just under $1.7 billion, the listing single-handedly represented 71 percent of the total proceeds in the quarter (Renaissance Capital, Q3 2022). The stock saw a modest drop on its first day, ending the quarter down 6.2 percent (Renaissance Capital, Q3 2022).
There were only two other deals worth more than $100 million (Renaissance Capital, Q3 2022). Third Harmonie Bio, a VC-backed biotech company, raised $185 million and ended the quarter up 11.6 percent (Renaissance Capital, Q3 2022). AMTD Digital, a Chinese fintech, raised $125 million and has seen significant volatility since then – enjoying a first-day pop of 108 percent and ending the quarter up 500 percent (Renaissance Capital, Q3 2022). The vast majority of the other deals were much smaller.
Technology deals made up nearly a third of the issues but around half of the proceeds were raised by one company (AMTD Digital) (Renaissance Capital, Q3 2022). Same for healthcare – the sector accounted for a fifth of listings but raised less than a tenth of the proceeds (and that was driven by Third Harmonie Bio) (Renaissance Capital, Q3 2022). Consumer discretionary delivered another 20 percent of the listings, led by a ramen restaurant operator and a hemp cigarette maker (Renaissance Capital, Q3 2022).
“There were no safe havens—regardless of your sector, your business model, your growth story or your path to profitability. Investors don’t know when the window is going to reopen. And, when it does, it is unclear what sectors the market is going to reward.” – Erika Whitmore, Audit Partner, KPMG Private Enterprise