High Profile IPOs At Risk

Sebastien Callebaut -

Around 25% Of Companies That Went Public In 2020 And 2021 Could Be Delisted

Numerous businesses that went public while the IPO market was thriving have had such severe setbacks that they are now faced with the sobering possibility that their shares will never recover.

  • According to Dealogic numbers, more than one in four of the approximately 600 businesses that went public through a typical IPO in 2020 or 2021 traded at less than $2 per share as of Friday's market closing
  • A listed company receives a notice from its stock exchange when its stock trades below $1 for 30 days or when other conditions aren't met
  • It then has 180 days to push back its stocks price, if it doesn't, it will likely be delisted or transferred to an exchange with lesser listing requirements

Dismal Returns

According to Dealogic, the number of traditional U.S. IPOs rose to their greatest levels since the late 1990s last year, while deal value reached new highs. These public debuts have so far performed much worse than the historical average.

  • In contrast to a historical average gain of 14%, 2021 deals have decreased by 14% on average in the six months following their IPO, according to Bank of America
  • The market quickly turned away from risky, growth-oriented companies amid prospects for increased interest rates and a return of volatility, particularly hitting small-cap IPOs and those with a protracted path to profitability

“High IPO supply, the anticipation of higher Fed Funds rates, a historically extreme proportion of early-stage/non-earning companies, plus perhaps some investor fatigue around learning so many new companies took a toll,” Thomas Thornton, a managing director at Bank of America

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Nicholas Cappello on Unsplash.