U.S. IPO market hits oversupply problem

A trader works behind plexiglass on the floor of the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 28, 2021. REUTERS/Andrew Kelly

NEW YORK, July 30 (Reuters Breakingviews) - The pandemic has thrown the world’s supply chains into disarray. The pipeline for companies going public on U.S. exchanges has its own sourcing problem: too many of them. Online trading app Robinhood Markets’ (HOOD.O) vaunted offering fell flat this week, battery maker Clarios International delayed its debut, and Dole cut its price. Other initial public offerings did better, but investors can afford to be choosy.

Some 265 operating businesses have floated on U.S. markets so far this year, already topping 2020’s 209 and raising more than $100 billion, according to Dealogic, a figure not seen in any full year since the heady days of 1999 to 2000. That’s not even including 387 floats of special-purpose acquisition companies in 2021 – trouncing the 248 that came to market last year – tapping investors for another $100 billion plus.

There’s still plenty of juice. The average first-day price pop for non-SPAC offerings so far this year is a whopping 39%, per Dealogic. Shares in trendy grill maker Traeger (COOK.N), for one, surged a hot 22% on Thursday.

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But at this year’s rapid pace, there’s potentially a surplus of inventory. Robinhood, valued at $32 billion at its IPO price, fell 8% on its Thursday debut. Bringing retail investors into the initial offering, usually reserved for institutional buyers, may have avoided a distorting stampede into the stock on the first day of market-wide trading. Still, underwriters try to price shares leaving room for early gains.

Fruit and vegetable purveyor Dole on Wednesday slashed the price of its offering. Clarios, the Brookfield Asset Management-owned (BAMa.TO) maker of car batteries, had aimed to raise nearly $2 billion in its float but on Thursday deferred its IPO citing current market conditions. So did Altice-owned (ATUS.N) advertising-technology outfit Teads.

Several alarm bells are ringing. Some big names, notably Chinese ride-hailing app Didi Global (DIDI.N), have hit serious trouble. Though its Beijing masters are behind the 30% slide in Didi’s shares since its float just a month ago, there have been too many China-based candidates seeking U.S. listings for investors to ignore the regulatory crackdown on the other side of the world.

More broadly, the Renaissance Capital IPO Index, which tracks issues for two years from their floats, is down slightly this year versus a nearly 20% gain on the S&P 500 Index. Snapping up newly public shares is no longer a no-brainer.

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- Robinhood Markets’ shares fell 8% to around $35 on their first day of trading on July 29, compared with an initial public offering price of $38 set a day earlier.

- Clarios International, a car-battery maker owned by Brookfield Asset Management, on July 29 delayed its initial public offering citing “current market conditions.” Advertising-technology company Teads, owned by French telecom group Altice, also postponed its IPO.

- Dole on July 28 slashed the indicative price range for its initial public offering. The fruit and vegetable grower said it plans to price its shares between $16 and $17 apiece, compared with the previous range of $20 and $23 per share. It would be valued at $1.7 billion at the top end of the new range.

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Editing by Lauren Silva Laughlin and Marjorie Backman

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