Q1 2022 IPO Review

The quarter saw a modest £410m raised, as London got off to its slowest start since the global financial crisis, with proceeds down over 90% on 2021.

There was, however, a warm reception for Clean Power Hydrogen in its £30m raise, seeing shares rise 47% for its AIM debut. The Doncaster-based company already has a heathy order book for its proprietary electrolyser-produced green energy and is aiming at exponential growth.

The demand for high-end television helped Facilities by ADF achieve a £15m raise against a £39m valuation. The company’s fleet of 600 mobile location vehicles services HBO, Netflix, Amazon and Disney+.

Hiro Metaverse raised £118m – more than targeted – for further acquisitions and developments in metaverse technology. The SPAC has benefitted from interest in all things metaversal, loosely describing virtual environments presently used primarily in gaming but with potential for education and e-commerce.

There were no wrinkles to Genflow Bioscience’s listing on the main market with a valuation of £27m. It is the first longevity-focused biotech to float in Europe and the £4m raised will fund further research into DNA-repairing proteins.

Strip Tinning Holdings raised £8m on AIM. The company’s trajectory is perhaps representative of the wider British industrial landscape, from Black Country wire-plater in 1957 to electric vehicle-focused parts manufacturer today.

March saw SPAC listings gathering pace following regulatory relaxation. This paved the way for the biggest raise of the quarter at £175m for Eni-backed SPAC New Energy One Acquisition Corp, which looks to “supercharge decarbonisation of industrial processes”.

After a bumper year in 2021, activity in London and other leading global exchanges was tempered by further instability due to several external worries, including surging energy and commodity prices, inflation, and the Ukraine invasion.

However, there is still cause for optimism. Companies have had to be flexible with their plans, and a robust pipeline has built up, with many biding their time awaiting more stable economic conditions.

As we progress through 2022, there may well be a race to list as companies seek out a window of opportunity. Some well-publicised big names are lying in wait, leading to a potentially busy year-end for investors.

Quarterly IPO proceeds were a staggering 5% on 2021's Q1 return, with high volatility putting off all but the bravest. March registered a single IPO of $69m. Worse may be to come, with tighter SPAC rules coming into force as the quarter ended.

It was therefore relatively easy for buy-out specialist TPG (formerly Texas Pacific Group) to stand out with a $1.1bn raise against a $9bn valuation, reaching $10bn after debut trading. This makes it the fifth-largest private equity firm globally, although still only half the value of next-placed Carlyle Group and some distance behind the number one, Blackstone at $619bn. TPG has benefitted from its own SPAC platform, investments in new media such as Spotify and the wider boom in the private equity, which in 2021 saw a record-breaking $5.6bn of M&A deals.

Inflation and low yields have encouraged interest in real estate. Those taking full advantage include Cohen & Steers Real Estate Opportunities Fund, which attracted $305m and fixed income specialist PIMCO which raised $866m for its specific focus on commercial property. 

Credo Technology was one of the few tech companies of any significance to see through its IPO plans. The loss-making Silicon Valley data connectivity company cut its offering and pricing to attract $230m but was well-received in early trading.

Of some consolation were successful biotech launches. Recursion Pharmaceuticals’ $436m Nasdaq raise seems to confirm a game-changing new direction for the sector in its use of AI. There are more permutations in how the proteins behind disease can be folded or shaped than atoms in the universe. Computational power is therefore an advantage, as demonstrated by Alphabet’s DeepMind, which has quickly overtaken traditional labs in predicting protein shapes and thereby allowing more targeted solutions. Recursion upped both share price and allocation, but still jumped 74% on debut trading.

Arcellxx is a cell therapy company that markets itself as dreaming big by thinking small. However, there was nothing about its $124m raise to fund trials of its cancer and autoimmune products, which follows swiftly on from a private funding round of $115m.

Similarly CinCor raised $193m only a few months after a $143m series B funding round, taking the pressure off development plans for its single hypertension drug.  

Given the high geopolitical perils and overall market volatility stemming from monetary policy changes that are being influenced by the many unrelenting inflationary pressures, it is no surprise why we see a lacklustre IPO market thus far.

The good news is that there remains a strong pipeline of companies looking to enter the public market at various stages of readiness.

Unfortunately, no one can predict when this volatility will diminish, but there should be a steady and healthy stream of new public listings on the horizon when it does.

As the quarter developed, there were investor jitters that perceived Chinese support for Russia would bring about US sanctions. Techs took the main hit, with Alibaba down 10% at one point. March saw $1.5bn of stock value wiped from the exchanges in the space of a two-day sell-off alone.

This got Beijing’s attention. After last year’s sanctions and fines on vast swathes of Chinese industry, the Party has begun to dial back on its aggressive rhetoric. Vice Premier Liu He felt obliged to put out the reassuring, if vague, message that “All policies that have a significant impact on capital markets should be coordinated with financial management departments in advance”.

However, there are more deep-rooted problems assailing Hong Kong, until recently the world’s leading exchange for listings. Its Nasdaq equivalent GEM (Growth Enterprise Market) last saw an IPO in January 2021. In some respects it was a victim of its own success. In 2016, it hosted 18 of the top 20 debuts, with an average day one “pop” of over 600%.

This also made it the most volatile exchange, with many investors getting burned on the almost inevitable downturns and it was soon riven with pump-and-dump scandals. The GEM Index for the past 5 years has returned minus 88% compared to minus 2.5% for the Hang Seng, while Bloomberg reports that since 2018, 10% of companies have disappeared altogether.

Intervention was inevitable for what is seen as a key element of the success for domestic high growth, high tech companies. In this quarter HKSE has welcomed its first SPACs, while the introduction of lock-in periods, minimum issues and capitalisation should reduce debut trading volatility. Nonetheless, regulators are also considering a clean slate altogether and are debating whether to make it open only to professional investors.

Meanwhile, Shanghai took the quarter’s top spot for proceeds, boosted by mega homecomings such as China Mobile’s $8.8bn raise and JinkoSolar’s $1.5bn, which appropriately enough re-listed on STAR. The race for self-sufficiency in semiconductor’s took a step forward with ASR Microelectronic’s $1bn raise.

“Companies are also now able to engage with a wider set of their stakeholders by offering them shares more easily. The desire to do so is not being driven by the need for funding but instead asking ‘how can we build a community, including employees and customers, that are invested in the company and engaged in our story?’ A company can do this at any point but it is easier if they start at the IPO.”

It is clear that there has been a major shift in capital markets when the Middle East is seen as a relatively safer space for investors.

In the first three months of the year, Tel Aviv’s stocks outperformed European indices and it raised more in IPO proceeds in January and February than London or Frankfurt. Highlights were a $155m raise for Kuvutzat Acro in the construction sector and $100m for ImageSat International in the defence sector.

Flushed with dramatically rising oil revenues, the Gulf States are seeing particularly strong demand for equities, tempting both private and state companies to go public. In Saudi Arabia’s busiest quarter on record, Nahdi Medical, the country’s largest retail pharmacist, raised $1.36bn for an issue that was fully subscribed within hours.  This helped the Tadawul overtake Nasdaq in proceeds for the quarter. 

Dubai is hoping to catch up with its Gulf neighbours by listing ten state-owned assets, starting with Dubai Electricity and Water Company. Valued at $34bn and already oversubscribed for next month’s IPO, it has just tripled its raise expectations to $5.7bn.

In such clement conditions, Aramco is reported to be considering a fresh share issue. The state asset raised a record $29.4bn in 2019, but delayed any follow-up because of the low oil prices in the intervening period.

Less sure-footed has been the Bombay Stock Exchange. Last year, 50 start-ups achieved unicorn status and 2022 was set to be its golden year. However, this quarter has seen considerable hesitancy to proceed to market, even after receiving often long-awaited regulatory approval.

In worrying developments for an exchange, AirBnB- and SoftBank-backed lodging platform Oyo is reported to have halved both its $12bn valuation and its $1.2bn raise ambitions. Life Insurance Corporation of India, India’s biggest provider, had hoped to raise $8.7bn but this has now likely to be pushed back to next year. Delhivery, perhaps one of the better-named of e-commerces, failed to show up on the BSE, while API Holdings, with a 50% share of online pharmaceutical sales, is also holding back after its share price fell 44% in the unlisted market.

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