The U.S. initial public offering market was bound to cool after two sensational years, including 1,015 new bids in 2021. But it is now in a mess after a period in which technology stocks fell in a bear market.
“There is an inverse correlation between market volatility and IPO activity,” said John Tuttle, vice president of the ICE of Intercontinental Exchange.
NYSE Group, where it oversees the global listing business.
In an interview at the World Economic Forum last week in Davos, Switzerland, he said when the stock market volatility index VIX VIX,
is 20 or less, which indicates a stable environment, companies are more likely to want to go public. Right now, however, the VIX is above 27.
He said there are three main factors on the market. First, the Fed’s rate hike cycle and questions about the size, timing, and frequency of rate hikes. Then there are the geopolitical issues that have had a major impact on supply chains and inflation. And the bottom line is a shift in investor sentiment from a focus on growth and revenue to a focus on profitability and cash flow.
Tuttle said there are still many companies that are ready to go public once conditions meet. “I suspect the most likely scenario is that you will see an OPI launch after Labor Day, with prices at the end of the month,” he said. “There’s a backlog of companies that were ready to go out, and then market conditions got a little more hectic.” For now, public company spin-offs can still test the market. AIG International Group,
for example, it has applied to sell most of its life and retirement business, an IPO it hopes to complete in the second quarter.
Tuttle said he was unwilling to proclaim the death of the SPAC market now that the Securities and Exchange Commission had begun cracking down on them, though he hoped the deal activity would return to historic levels. “There may be companies where they believe that alignment with a sponsor can bring a strategic benefit to the company, either because of their experience, network or even just guidance and governance, which could be useful for the company. “A company as it becomes a public company,” he said.
Tuttle argued that in a volatile environment, listing on the New York Stock Exchange is even more valuable. He cites data showing that rival exchanges are more than twice as volatile at opening auctions and three times as volatile at closing auctions. (Nasdaq NDAQ,
maintains that it has tighter differentials in both opening and closing.) “We’ve been doing this for 230 years,” he said. “The way we do it has evolved, but it’s about adding that liquidity, having that responsibility and remembering who the market serves, and that’s issuers and investors.”
The big problem in Davos was sustainability. Would the NYSE ever restrict listing based on these criteria? “We take a non-opinion-based ESG approach as we provide best practices when it comes to reporting, but we also provide data,” he said. Companies can get the data they want to compare with their peers and also measure their own progress.
“When it comes to setting listing standards, our view is that the job of creating policies is the job of policymakers. Therefore, the job of operating the world’s most liquid capital markets that provide access to capital and access to opportunities is what we do best. “