IPO Boutique’s Q2 2022 Forecast

To say that the first quarter was underwhelming would be an understatement. 

A total of just six IPOs came to market with only two coming in February and March, combined. Secondary offerings through the first quarter were also scarce with only 66 transactions priced. How does that compare to the first quarter of 2021?

Q1 2021: 79 IPOs and 298 Secondary offerings.

So, who’s to blame?

   First, the broad market did not play nice. The top-print of 2022 on the    SPY (SPDR S&P 500 ETF Trust) was in the first week of the calendar year. Markets have been unsteady due to consistent inflation headlines, the commencement of rate hikes and then the large news driven event, the Ukraine-Russia war. This has sent markets into increased volatility. The instrument ECM players use to determine if conditions are ripe for IPOs and secondary offerings is the VIX. Unfortunately in 2022 the VIX spent 23 sessions at 30 or above.

The ideal spot for the VIX over the last three years of the IPO boom was closer to 15. While the VIX is a barometer, it is not the only metric that opens or shuts the IPO market down as there have been some very successful IPOs that have debuted in the past when volatility has been higher.

But to take a step back: maybe this breather was needed.  After an 18 month run from April 2020 to November 2021 with perfect conditions.. you could understand modest profit taking and a slower pace. Market conditions for that extraordinary run (which also saw nearly 400 IPOs) were ideal with low interest rates and an infusion of covid-stimulus. Those factors have now changed over the last six months.

The current outlook may look bleak on the surface, but there are encouraging signs of life for Equity Capital Markets. The broad market has rallied over the past two weeks with the S&P500 at +8.6% since March 15. The VIX has reversed and even knifed as low as 18.67 earlier this week.  At the time of this writing the VIX is in the low-20s. And with that…there are a number of companies that are finally tipping their hands at “possibly launching” an IPO in April and May with updated filings with the SEC.  Below are just a handful of companies that have updated their prospectus in recent weeks and are primed to launch a deal.

Q2 2022 Forecast:  Bausch + Lomb Corporation, REV Renewables,Inc., DESRI Inc., Basis Global Technologies, Inc., Dynasty Financial Partners Inc., Aleph Group, Inc., Solta Medical Corporation,  KinderCare Learning Companies, Inc., The Fresh Market Holdings, Inc., Fogo Hospitality, Inc., Excelerate Energy, Inc., Justworks, Inc., SAFG Retirement Services, Inc, ProFrac Holdings Corp

With a strong tailwind from the entire energy sector, we would anticipate that companies in this area test the waters first. Additionally, it is our opinion that private-equity backed companies may be able to bring the right deal public.

What is the “right deal”?

After some discussions with our ECM sources at both banks and on the buy-side, we believe that getting the first few IPOs out of the gates is of the utmost importance to confidence for the IPO market. To begin, we believe that deals with a tighter float and offerings that are disproportionately allocated to institutional investors will be a potential “likely” outcome. It is our opinion that the IPO Market will need to learn to walk again before it runs. But after that, there is no shortage of companies that will be looking to use the traditional IPO process as its end-game.

And rest assured, IPO Boutique will be there to provide the highest quality research and commentary in this niche sector.