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The IPO market, which has slowed this year, showed another sign of weakness Wednesday as the human-resources software company Justworks postponed its planned offering.
Justworks was scheduled to price its deal later Wednesday and trade Thursday. “Justworks has decided to delay its IPO due to market conditions at this time,” according to a statement from the company. 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 Thursday, still plans to move forward with its IPO. TPG’s deal is approaching 10 times oversubscribed, a person familiar with the situation said. 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 IPOs saw their busiest year ever during the first 11 months of 2021, inflation and Omicron fears caused new issues to stall in December, with just a dozen companies listing their shares.
Three biotechs went public last week to dismal results. On Wednesday, another biotech,
Hillstream BioPharma
(ticker: HILS), dropped more than 11% from its IPO price, making it a so-called broken deal.
The new-issues market this year continues to suffer from the poor performance of 2021’s class of IPOs. Roughly 400 companies went public in 2021 via traditional offerings; nearly 32% are trading above their offer price. This means 68% are below their IPO prices.
Late Tuesday, Hillstream raised $15 million after increasing the size of its deal. The biotech had planned to sell 3 million shares at $5 to $6 each but ended up selling 3.75 million shares at $4. Hillstream is developing therapeutics targeting cancer. The stock opened Wednesday at $3.75 and changed hands in afternoon trading at $3.55, down 45 cents from its offer price.
Matt Kennedy, senior IPO strategist at Renaissance Capital, said the IPO market is undergoing a challenging period. “Demand dries up when returns sink,” he said. “When investors lose money on IPOs, they start to demand steep discounts to buy new upcoming deals.”
The
Renaissance IPO
exchange-traded fund (IPO), which tracks companies for three years after they go public, is down 8.2% year to date. Companies that had planned to go public in the first quarter will likely delay their deals now, Kennedy said. Businesses will want to avoid a situation like that of Justworks, which withdrew its offering after conducting a roadshow, he added.
This doesn’t mean that no companies will go public now, but companies that choose to list will need to offer a significant discount to their publicly traded peers, Kennedy said.
Deals such as the IPO of Reddit, the social-media company that has confidentially filed for an offering, could still go ahead in the current environment, Kennedy said. IPOs of select other high-profile companies could also well perform well given their “vast growth and high margin potential,” he said.
Reddit has tapped Morgan Stanley and
Goldman Sachs
to advise on its offering and may launch in March, Bloomberg reported last week. Reddit didn’t immediately respond to messages seeking comment.
Write to Luisa Beltran at [email protected]
