Record IPO binge leaves investors hung over

Initial public offerings (IPOs) around the world raised a record $594 billion in 2021, riding the coattails of stock market rallies, yet often disappointing investors with their subsequent stock performance.

Companies ranging from technology start-ups to blank-check acquisition firms flooded the market with offerings, capitalizing on investors' willingness to place speculative bets as low interest rates and the re-opening of economies thanks to COVID-19 vaccines fueled their appetite for risk.

"It was a truly euphoric capital market when you put it in the context of new issuance activity, and in particular in the creation of new public companies," said Andrew Wetenhall, co-head of equity capital markets in the Americas at Morgan Stanley (MS.N).

Some of those bets worked out. Those who bought into the $$1.2 billion IPO of lending start-up Affirm Holdings Inc (AFRM.O), backed by PayPal Holdings Inc (PYPL.O), in January have more than doubled their money, versus a 25 per cent return in the S&P 500 index.

But many IPOs soured. Shares of Swedish vegan milk maker Oatly Group AB (OTLY.O), which raised $1.4 billion in its IPO in New York in May, are down 53 per cent, while those of British food delivery app Deliveroo Plc (ROO.L) , which raised 1.5 billion pounds ($2.1 billion) when it listed in London in March, are down 46 per cent.

The Renaissance IPO index, which tracks the average performance of newly listed US IPOs, is down about 8 per cent for the year, compared with a 25 per cent rise in the S&P 500 index.

Some bankers cautioned that shares of some of the companies that went public in 2021 are still trading at historically high valuations, even if they took a hit after their IPO. This is because many investors were willing to pay top dollar to buy into these companies in private fundraising rounds in the run-up to their IPOs.

"The issue is that buyers of these IPOs as well as after-market buyers are marking losses," said Paul Abrahimzadeh, co-head of North America equity capital markets at Citigroup Inc (C.N).