It has been an unprecedented end of February and beginning of March. The mere velocity of the current moves puts this “crash” among the all-time worsts.
No one can predict a timeline with certainty as to when the market fully recovers. But from an IPO and Secondary perspective…a full recovery is not necessarily needed.
But what is needed is a bit of stability.
As we are an IPO rating and advisory service, we are closely monitoring the situation to see when “our business will return to normal”. Sources that I speak with have stated that liquidity is not a problem. There are, of course, dedicated investors to the niche IPO market. But in the short term, companies that are willing to tap the public market will currently have to match a a far lower valuation with the risk that the market is presenting.
In other words, private valuations are “officially” thrown out the window.
We follow the volatility index (VIX) closely. On Monday the VIX closed at an all-time high of 82.69 which topped the financial crisis era high of October 2008. The ideal environment is a sub 15 VIX. According to Refinitiv-IFR data… dating back to 2000, 91% of IPOs have priced when volatility was below 25.
So, what us as an IPO rating service is “rooting for” is sub 1.0% swings and a base that the market can build on. Smaller swings and a more predictable market is what will bring IPO investors back.
If there is a silver lining at this time, it is that the IPO pipeline is surprisingly still flowing during this coronavirus-chaos. A total of nine companies filed for an IPO since February 28th:
- Procore Technologies
- Oric Pharmaceuticals
- Accolade Inc
- Pulmonx Corporation
- Zentalis Pharmaceuticals
- Lyra Therapeutics
- Albertsons Companies, Inc.
- Ayala Pharmaceuticals
- Keros Therapeutics–filed yesterday
The healthcare sector is well represented with six of the nine filings coming from that area. These type of deals are “more suited” for this environment as they are typically low-float IPOs that can be allocated to a smaller group of investors.
We believe one company that “may” elect to push forward could be Albertson’s and they would need to concede valuation.
2020 was scheduled to be a robust first half of the year due in part to the election on the back half of the calendar. One source I spoke with said deal flow could now be heavier during the election cycle given that former Vice President Joe Biden is the front runner for the Democratic nominee. While there are differences between a Biden Presidency versus a Trump Presidency, the contrasts are not as drastic if the nominee was Bernie Sanders.
But one thing that will likely result from the Coronavirus is the way that roadshows will be performed in the foreseeable future. We would anticipate that video roadshows will be the “new norm” for the rest of 2020. One-on-one meetings would likely be minimal.
While we would like to be optimistic…we also want to be realistic. It is our opinion that that IPOs would not likely resume until the latter half of April at the “earliest” unless an unprecedented snap-back occurs.
And based on the unpredictable events of the last month, it means anything is on the table.
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