Martin Glass, a partner at law firm Jenner & Block, is right to argue that people have paused on initial public offers, rather than leaving the ship (“IPO values have fallen by 90% in Europe and the US as inflation and war hit ”, Report, June 6). Furthermore, tech companies preparing for an IPO have the best chance of weathering this particular storm.
We recently collated data on tech IPO hits and misses from the past decade. Overall, the total market capitalization on the list is $ 2.25tn,
with average growth for tech IPOs at 252 percent. During the pandemic, emergency quantitative easing (QE) from central banks and interest rates dropping to zero meant more people invested.
As a result, 2020 and 2021 were record years for IPOs – but now we’re at the end of that peak. Some overly hyped companies have crashed: Robinhood, Lyft and Coinbase performed poorly against expectations, showing how confusing it can be to predict how markets will behave in the best of times.
Our analysis shows that tech IPOs have a better chance of winning if you can buy them at the list price but tech IPO returns are far greater in the short term, as much as 2-3 times than general IPOs.
In all, 26 IPOs were listed when the market dropped 5 percent or more, seven during the 10 percent or more fall – but they were some of the most successful, including Facebook and ServiceNow.
Of these seven, three companies had negative revenues from the listing date but three had broad revenues. The average return was a staggering 623 percent from the listing and 463 percent from the opening date. Clearly, if a business is stable and resilient, going public in a difficult time will not affect long -term profits.
However, it is unwise to think that such companies will choose to go public despite the bad market. The IPO listing is a long procedure that can take years; its delay can be costly and damage reputation.
However, the observation is true that strong companies are not good at opening during difficult markets but perform well in the long run – some comfort as this hurricane continues.
Humberto Ayres Pereira
Chief Executive and Co-founder, Rows