The IPO market, which has slowed this year, showed another sign of weakness on Wednesday as human-resources software company JustWorks postponed its planned offering.
JustWorks was supposed to price its deal on Wednesday and trade on Thursday. According to a statement from the company, “JustWorks has decided to delay its IPO at this time due to market conditions.” The start-up plans to keep its prospectus on file with the Securities and Exchange Commission and will continue to update it, a person familiar with the situation said.
TPG, which was also scheduled to trade on Thursday, is still planning to go ahead with its IPO. A person familiar with the situation said TPG’s deal is approaching 10x more subscriptions. The private-equity firm will trade on the Nasdaq under the ticker TPG.
The Justworks withdrawal is the latest sign that the IPO window is closing. After its busiest year of IPOs during the first 11 months of 2021, inflation and Omicron fears prevented new issues in December, with just a dozen companies listing their shares.
Three biotechs went public last week, with disappointing results. On Wednesday, another biotech, Hillstream Biopharma (ticker: HILS), dropped 13% from its IPO price, Making it a so called broken deal.
This year the new issue market is facing the poor performance of the class of 2021 IPOs. About 400 companies went public in 2021 through traditional offerings; About 32 per cent are trading above their offer price. This means 68% are below their IPO prices.
Late Tuesday, Hillstream raised $15 million After increasing your deal size. The biotech had planned to sell 3 million shares at $5 to $6 each, but sold 3.75 million shares at $4. Hillstream is developing therapeutics targeting cancer. The stock opened Wednesday at $3.75 and closed 52 cents below its offer price at $3.48.
Matt Kennedy, Senior IPO Strategist at Renaissance Capital, said the IPO market is passing through a challenging period. “When returns sink, demand dries up,” he said. “When investors lose money on an IPO, they start demanding huge discounts to buy new deals that are coming up.”
The Renaissance IPO exchange-traded fund (IPO), which tracks companies for three years after going public, is down 8.2% year to date. Kennedy said companies that had planned to go public in the first quarter would now delay their deals. He said businesses would like to avoid a situation like JustWorks, which withdrew its offer after holding a roadshow.
Kennedy said that doesn’t mean any companies will no longer go public, but that companies that are on the list will need to offer significant discounts to their publicly traded peers.
Kennedy said deals like the IPO of social media company Reddit, which filed for an offering confidentially, could still go ahead in the current environment. He added that IPOs of select other high-profile companies could also do well given their “huge growth and high margin potential”.
Reddit has tapped Morgan Stanley and Goldman Sachs to advise on its offering and may launch in March, Businesshala told Last week. Reddit did not immediately respond to messages seeking comment.
Write to Louisa Beltran at [email protected]