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In a record-breaking initial public offering year, some companies are taking the initial part a little too seriously.
New data shows that the shares of nearly half of all companies that have raised $ 1 billion or more from an IPO this year are now trading below their opening price. This is the latest indication that private company valuations are riskier than safe.
Purchase order by these IPOs
Global stock markets had a record year. Shares of the US S&P 500 index, for example, have returned 24% so far in 2021. There has also been a wave of IPOs, which EY says have raised more than $ 330 billion. this year, many of them once. -PSPAC mergers were all the rage.
So with markets doing well and all these new companies trading there, you would think the new entrants would have a fabulous year. Well, think again:
- Dealogic data shows that 49% of this year’s 43 IPOs that raised $ 1 billion or more are trading below their issue price, up from 33% in 2019 and 27% last year.
- Some large-scale IPOs turned out to be fluff: the food delivery app Deliveroo (apparently designed for pandemic times) fell 26% on day one and failed to rebound; Chinese carpooling app Didi Chuxing is down 40% since its inception; and Indian fintech giant Paytm fell more than 40% in its first two days of trading.
Pay the price: Companies often look for high valuations to increase their visibility and attract more cash, but this doesn’t always work. According to Financial TimePaytm was forced by his management’s insistence on setting a record for an Indian IPO. Some conservative investors then gave up, and when hedge funds found themselves with more equity allocations than expected and drained their excess holdings, the price fell.
Swings and misfires: Goldman Sachs has been the main banker of 13 IPOs that have raised more than $ 1 billion this year, but nine are in the red, including Didi and the Robinhood trading platform. Rival Morgan Stanley, who managed Paytm, saw six of his 14 deals turn sour.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.