Equity fundraising faces new world of risk towards year-end

NEW YORK: Just when it looked like Wall Street was seeing a rebound in equity fundraising, bankers and would-be issuers are pumping the brakes.

War in the Middle East, surging treasury yields and a fickle market for new issues are all risks that are expected to slow already depressed deal flow to a trickle this quarter by ramping up market volatility and dimming investors’ risk tolerance.

A string of underwhelming initial public offerings (IPOs) has only exacerbated scepticism on Wall Street as a dearth of new issuance nears a second full year.

Just US$47.6bil has been raised in IPOs on US exchanges since the start of last year – less than the total for the final two months of 2021, data compiled by Bloomberg showed.

The collapse has far-reaching repercussions, crimping companies’ access to capital, spurring banks to cut thousands of jobs and limiting the ability of long-time backers to cash in and recycle funds to other investments.

“I’m not expecting a lot of IPO activity between now and the end of the year,” said David DiPietro, head of private equity at T. Rowe Price.

Would-be public companies have to be pretty confident in “projections for at least the following year, and it feels like that’s difficult given the external factors that can impact businesses”.

The IPO market’s success historically is driven by strength in equities and demand for riskier assets, and that appetite has faded.

With the US Federal Reserve signalling it will keep interest rates elevated and oil climbing amid Mid-East tensions, the S&P 500 is on track for a third straight monthly loss.

Add to that the potential for a US government shutdown in November that could effectively close the IPO business for weeks and lacklustre receptions for offerings like Birkenstock Holding Plc this month, and the reasons are mounting for the new-offering spigot to stay shut well into 2024.

“From talking to clients and others in the ecosystem, there could be a window that opens up in mid-to-late-March and onwards,” said Conor Moore, head of KPMG’s Private Enterprise practice.

That said, some companies are still willing to test the current environment.

Healthcare payments software firm Waystar Holding Corp and Hamilton Insurance Group Ltd submitted filings last week, while oil and gas producer Mach Natural Resources LP set a price range for its IPO.

Other closely held firms are weighing different options, like private fundraising rounds.

Meanwhile, those that are public can sell more shares or issue convertible debt, steps that only partly fill the hole left by an anemic IPO market.

Follow-on offerings have rebounded this year as firms, after raising record sums in 2020 and 2021, return to the capital market to replenish their coffers.

Corporate America and its biggest investors have brought in US$77bil from secondary equity sales this year, up about 50% from this point last year, data compiled by Bloomberg showed. — Bloomberg