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US IPO Prices Muted As Investors Are More Discerning

U.S. initial public offerings (IPOs) are seeing a slowdown in investor interest.

Financial Times (FT) reported on Monday (May 31) that the developments make it less likely that companies will go for higher-than-expected price shares. And they’ll likely not enjoy the same kind of price pops on the first trading days.

The IPO market has cooled down substantially after a hectic first quarter. Shares in recently floated companies have been going lower, and some high-profile debuts have flopped.

January and February saw numbers of companies joining the New York Stock Exchange or Nasdaq expanding by over 40 percent from their IPO price on the first day of trading. But by March and April, those figures were dropping. By then, the numbers had dropped to around 20 percent.

In May that number fell lower to around an average of 18 percent.

That doesn’t include the IPOs involved with special purpose acquisition companies (SPACs). Those, too, have almost entirely dried up, Bloomberg reported.

Pricing the IPOs has become tighter as well, with recent numbers dropping to 11 percent that have exceeded their expected range, a decrease from the first quarter seeing one in four companies doing that.

Now, thirteen percent of companies are pricing below expectations, which is the highest amount since the pandemic has begun.

There’s one month left in the second quarter, and 54 companies have raised $18 billion. That’s lower than the first quarter, which saw 101 companies raising $42 billion.

But investors are still interested in some IPOs, including hospital scrubs brand Figs, which saw an IPO priced at $22, or $3 ahead of its predicted range.

The reason some investors have been moving away from IPOs is the volatile stock market, with fears of inflation abound. The changes have prompted some companies to delay their IPOs. The S&P 500 had its biggest three-day swoon in almost seven months in mid-May.

The Wall Street Journal recently wrote that a good IPO market would go a long way to determining how the rest of the year goes.

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