The first quarter’s 18 IPOs marks a significant slowdown in the pace of companies testing the pubic-market waters.
With $2.1 billion raised, the initial public offerings from January through the end of March marked the slowest rate seen in six years, well off from the 101 companies in the same 2021 period that raised $39.2 billion with their debuts on the public markets.
Fashion had a busy Q1 last year, with Poshmark, Mytheresa.com, Dr. Martens in the U.K., and ThredUp all going public. Roger Federer-backed running brand On Running, Allbirds, Fabletics, and Rent the Runway also completed IPOs before 2021 came to a close.
IPO tracking firm Renaissance Capital’s new report points to “[p]lummeting returns at the end of 2021” that “effectively put an end to the past year’s IPO boom,” citing the “escalating war in Europe” as a significant factor in why ” issuance ground to a halt in late February.”
Russia’s February attack on Ukraine roiled financial markets and reportedly spurred Shein to shelve its plans to go public. Sources said the 14-year-old Chinese fast-fashion firm was readying for a public listing later this year in New York.
Now Shein is said to be talking with private equity firms about financing that could value the company at $100 billion, Bloomberg reported Sunday. The move would mimic Authentic Brands Group’s decision to skip out on an IPO last year in lieu of a private-equity deal pegging its valuation $2.7 billion above the $10 billion number floated for a public launch.
Renaissance said that only seven IPOs in the first quarter raised more than $50 million, led by TPG’s billion-dollar deal, which alone represented nearly half of the quarter’s proceeds. TPG, formerly known as Texas Pacific Group, has been a big investor in the consumer space during its over 30-year history. In May 2005, TPG joined forces with Warburg Pincus to acquire luxury retailer Neiman Marcus for $5.1 billion. The two private equity firms in October 2013 completed its sale of Neiman to Ares Management and the Canada Pension Plan Investment Board for $6 billion.
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The IPO tracking firm said the first quarter data also reflected a sharp drop-off from fourth quarter 2021 data that saw 84 companies raising $35.0 billion in their public offerings. Moving from 2021’s fourth quarter to 2022 first quarter, the period also saw a deflation in the SPAC market, falling 66 percent in pricings, along with a rise in IPO withdrawals, redemption rates and merger terminations, Renaissance said.
A SPAC, or special purpose acquisition company, is essentially a shell company that raises money through an IPO, then finds a company to buy within 18 to 24 months or has to return the money to investors. The process means companies don’t have to put together a road show for investors, and they don’t need to file any financial documents because until it completes an acquisition, it doesn’t have any operations and nothing to report.
Some SPACs have been successful in acquiring targets. Origin Materials Inc., a carbon negative materials company, combined with the Artius Acquisition Inc. SPAC. Earlier this year, e-commerce software provider Nogin elected to go public through a SPAC, merging with Software Acquisition Group Inc. III. The deal would mean the Modcloth and Justice platform would become a public firm when the merger is completed as expected in Q2. And Lanvin last month agreed to merge with Primavera Capital Acquisition Group, a SPAC. When the merger is completed, it will create a publicly listed entity that will see its shares trade on the New York Stock Exchange. Lanvin was formerly known as Fosun Fashion Group, a luxury fashion firm whose portfolio includes Italian luxury shoemaker Sergio Rossi, Austrian intimates specialist Wolford, American women’s wear brand St. John Knits and Italian men’s wear maker Caruso.
But SPACs could see a slowdown for a different reason. The Securities and Exchange Commission on March 30 voted to propose new rules for SPACs that would require these shell companies to provide more investor disclosures. The rules would also compel SPACs to provide updated guidance on the use of projections in SEC filings.
“The near-term outlook for the IPO market is foggy, heading into the second quarter, though one thing is clear: recent IPO returns and risk appetite will need to rebound before activity resumes,” Renaissance Capital said. “Still, many private companies are eyeing 2022 IPOs, and there are plenty of candidates in the pipeline ready to come to market once conditions improve.”