The U.S. IPO market begins another slow week with just one small trade in progress, capping a period of little to no activity as investors watch volatile secondary markets amid high inflation, on-chain issues supply and war in Europe.

According to Bill Smith, co-founder and managing director of Renaissance Capital, a provider of ETFs focused on IPOs and institutional research.

The typical flurry of deals that tend to occur after Memorial Day weekend did not materialize with only Hong Kong-based online brokerage Zhong Yang Financial Group TOP,
+1.88%
hit the market last week. This transaction was at the low end of its range to raise $25 million at a valuation of $175 million.

“The big macroeconomic overhang is rising interest rates, which are really poison for growth stocks,” Josef Schuster, founder of IPOX Schuster LLC and chief architect of the IPOX indices, told MarketWatch.

“You can see today the market tried to hold on but then yields went up and that is the big problem that needs to be fixed. ‘to act.

Source: Renaissance Capital


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The IPO market is also suffering from weak returns resulting from last year’s bumper crop of deals, Shuster said. More than 1,000 new companies listed shares on US exchanges in 2021 to raise $315 billion, according to Dealogic data.

Many of these deals are now failing, causing investors to lose money and avoid new offers.

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The pre-IPO market, meanwhile, swept away billions of dollars that are now stuck as valuations come into question amid wealth destruction in the tech sector. (The pre-IPO market allows employees and accredited investors to trade shares of private companies that are preparing to go public.)

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“The pre-IPO market didn’t exist 10, 20, or 30 years ago, but many investors are now stuck in markets that can’t be assessed because sponsors haven’t updated,” said Schuster.

Hedge funds are also hitting a wall, he said. Tiger Global Management, for example, is believed to have lost more than 50% of its value in 2022 so far, after betting big on tech names like Snowflake Inc. SNOW,
-1.35%,
Sea Ltd SE,
+3.16%
and Carvana Co.CVNA,
-6.18%,
as CNBC reported last week.

A positive sign is that companies that braved the market in 2022 are doing well, Schuster said. Examples include oil services company ProFrac Holding Corp. PFHC,
+3.11%,
which is up around 10% since its IPO in early May, and Excelerate Energy Inc. EE,
-5.89%,
which is up about 5% from its April debut.

“There’s a vintage of deals getting cheaper and doing well, and that may be a light at the end of the tunnel,” Schuster said. “Founders are more selective and investors are more selective, so things are getting more rational, which could mean a turnaround later this year.”

One IPO vehicle currently struggling is the Special Purpose Acquisition Company, or SPAC, which is a blank check company model that has become very popular during the pandemic. SPACs are shells that list on the stock exchange and then have up to two years to acquire a business or businesses and turn them into public corporations.

Last week, Forbes and SeatGeek were forced to scrap the SPAC deals, joining a growing list of companies that had to cancel their plans.

“A listing is simply not worth it if the result is high fees, little funding, low liquidity and reputational damage from low returns,” said Smith of Renaissance.

IPOX’s Schuster noted that many SPACs are almost two years old and if they haven’t reached a deal, they could be forced to liquidate and return the money to investors. The majority of SPACs underperform traditional IPOS “and are just bad business,” he said.

The two Goldman Sachs GS,
+0.57%
and Citigroup Inc. C,
+0.14%
recently said it would no longer work on SPAC transactions, he said, while Bank of America said it would reduce its exposure. Schuster likened the phenomenon to the dot-com era of 2000, when big bombed banks couldn’t get enough IPOs from tech startups — until the crash and they all pulled out.

“Strong companies that want to fund their growth will always find the IPO route to be the best,” he said.

The only deal this week is Phoenix Motor Inc. PEV,
,
a spin-off from SPI Energy Co. Ltd. The company designs, assembles and integrates electric drive systems and light and medium electric vehicles, such as forklifts, and markets and sells electric chargers.

Phoenix plans to offer just 2.5 million shares priced at $7 to $9 a pop, to raise as much as $22.5 million. With 20 million shares expected to be outstanding once the deal closes, the company would be valued at up to $180 million at the top of that range.

The company has applied for listing on the Nasdaq under the symbol “PEV”. By the end of the year, Phoenix had delivered 104 electric shuttles and work trucks.

“Phoenix Motor is very unprofitable and has yet to generate significant revenue,” said Smith of Renaissance.

The company reported a net loss of $2.32 million in the quarter ended March 31, higher than the $1.91 million loss recorded in the year-ago period, according to its prospectus. Revenue rose to $671,000 from $473,000 a year ago.

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