WEBVTT - IPOs Facing Slower Start in New Year

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<v Speaker 1>These sees Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stinebeck on Bloomberg Radio. Alright, Mike, let's talk about the

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<v Speaker 1>ip O business, one of my favorite businesses. I did

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<v Speaker 1>a ton of IPOs back in the day. It's always

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<v Speaker 1>fun bringing a new company to market. See how the

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<v Speaker 1>management team does in front of investors, See how investors

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<v Speaker 1>react to you know, new stories, new management teams, um

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<v Speaker 1>and uh, not so much. This year, I'll talk about

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<v Speaker 1>something else that's dead. You know, you got tumble weed

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<v Speaker 1>blowing through the IPO IPO desks and exactly right, and

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<v Speaker 1>they're gonna see it in their bonus checks. Unfortunately, are

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<v Speaker 1>good friends there. But check this data out Ernst and Young,

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<v Speaker 1>that's how I refer to them. But their e Y,

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<v Speaker 1>that's their their new branding EY. Reaching least, it's quarterly

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<v Speaker 1>IPO data report which shows overall deal proceeds dropped and

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<v Speaker 1>a number of deals dropped seventy percent. I don't think

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<v Speaker 1>I've ever seen numbers like that. So let's stake into that.

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<v Speaker 1>We can do that with rape. Rachel Garring, I p

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<v Speaker 1>O leader, uh tough business in two for Uy Americas.

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<v Speaker 1>She joins us via zoom from Nashville, Tennessee. Rachel, thank

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<v Speaker 1>you so much for joining us here. I don't think

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<v Speaker 1>I've ever seen numbers like that. Help give us some

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<v Speaker 1>contexts for what happened in the I p O market

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<v Speaker 1>this year. Well, the I p O market certainly took

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<v Speaker 1>a reverse turn from what we saw in roughly ninety

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<v Speaker 1>I p O s um here in the US, which

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<v Speaker 1>is the lowest number in volume that we've seen since

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<v Speaker 1>two thousand and nine, eight point six billion in proceeds raise,

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<v Speaker 1>which is the lowest in proceeds raised we've seen in

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<v Speaker 1>over two decades so far from what we saw in

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<v Speaker 1>one that broke records, going all in the opposite direction. Well,

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<v Speaker 1>it's a good point, you know, these year over year

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<v Speaker 1>numbers are comparing the market to a just a bonanza.

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<v Speaker 1>Everyone was coming to market, uh, spacks and everything else

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<v Speaker 1>in I guess so that that's part of the story

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<v Speaker 1>behind that huge percentage shop. But Rachel, how does this

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<v Speaker 1>look now going forward? Or is there now a bottleneck

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<v Speaker 1>of I p O s that we'll see in three

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<v Speaker 1>if the conditions are a little bit better, you know,

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<v Speaker 1>can we expect to see a lot of deals that

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<v Speaker 1>were canceled sort of come come to market next year.

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<v Speaker 1>It's hard to say what certainly has been impacting the

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<v Speaker 1>I p O market for twenty two. And I've heard

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<v Speaker 1>in your earlier segment those those headwinds that all companies

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<v Speaker 1>are facing, you know, are not going to change course

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<v Speaker 1>immediately in three. So expect a slower start in in

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<v Speaker 1>twenty three, hopeful for the back end of twenty three

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<v Speaker 1>for volatility to settle out and the market to reopen,

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<v Speaker 1>and then certainly into twenty four we can start to

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<v Speaker 1>be optimistic as well. But we we need you know,

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<v Speaker 1>come needs to come to market that have strong performance,

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<v Speaker 1>strong profitability. Those are what those are the types of

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<v Speaker 1>companies that are really going to attract investors on the onset.

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<v Speaker 1>All right, well, given that backdrop Rachel is the sack

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<v Speaker 1>market dead, I don't think this back market is dead.

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<v Speaker 1>We're not going to see the volumes that we've seen

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<v Speaker 1>in UM. We need three things to happen with SPACs. One,

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<v Speaker 1>some of the backlog needs to be cleared out, so

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<v Speaker 1>we will continue to see liquidations and then hopefully also

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<v Speaker 1>some deal announcements in mergers to be completed. We also

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<v Speaker 1>need the regulatory overhang to clear out, so final rulemaking

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<v Speaker 1>from the SEC and then um third is overall market

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<v Speaker 1>perception really needs to improve around SPACs, and so that's

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<v Speaker 1>going to start with performance of those companies that already

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<v Speaker 1>completed a DESPAC to start to improve and really drive

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<v Speaker 1>some um improved investor perception. You know, Rachel Paul made

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<v Speaker 1>a good point about the actual bankers, the humans involved

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<v Speaker 1>in all these deals. What do you think most banks

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<v Speaker 1>do do they do they keep these bankers around in

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<v Speaker 1>case there is a rebound or maybe you know, if

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<v Speaker 1>things get bad enough, there's a lot of secondary offerings

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<v Speaker 1>to work through. What what is you know, kind of

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<v Speaker 1>the mood of the bosses, of the bankers, of of

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<v Speaker 1>ip O desks going into Yeah, it's hard for me

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<v Speaker 1>to say in terms of, you know, the exact mood

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<v Speaker 1>um in the on the banking side of the house.

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<v Speaker 1>But the one thing I would say is we've been

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<v Speaker 1>here before. We've seen retrenchments in I p O activity

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<v Speaker 1>like we're experiencing right now, and we've also seen the

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<v Speaker 1>quick recoveries that come. So it's hard to predict exactly

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<v Speaker 1>when that I p O recovery will occur, but when

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<v Speaker 1>it does, it comes quickly, and the markets certainly improved,

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<v Speaker 1>so I think we can all weather through this storm.

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<v Speaker 1>And right now, companies are focused on taking this time

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<v Speaker 1>to be focused on the business, focused on their fundamentals,

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<v Speaker 1>shoring up and preparing to go public, which is looking

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<v Speaker 1>at their talent and taking um, taking um the advantage

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<v Speaker 1>of the market right now to really attract you know,

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<v Speaker 1>strong talent and improve business performance. Did you think it's

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<v Speaker 1>a lower interest rate environment sort of a prerequisite to

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<v Speaker 1>get I p o s to market? Uh? You know,

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<v Speaker 1>is it just get those animal spirits going again when

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<v Speaker 1>money is cheaper. We don't think that low interest rates

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<v Speaker 1>that we've experienced, you know, for for a number of

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<v Speaker 1>years is a necessity. I think what we need is

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<v Speaker 1>just um. We need the interest rates just to level out.

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<v Speaker 1>We need a level of um predictability. But we've had

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<v Speaker 1>I p o s in high interest rate environments before,

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<v Speaker 1>so interest rates coming down to what we've been experiencing

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<v Speaker 1>close to zero is not a necessity, Rachel. One of

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<v Speaker 1>the drivers historically for initial public offerings has been, uh,

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<v Speaker 1>you know, the private equity business. They're bringing some of

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<v Speaker 1>their portfolio companies public. Do we have any kind of

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<v Speaker 1>information on maybe the backlog there will private equity sponsored

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<v Speaker 1>companies be a source of IPO activity when the market

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<v Speaker 1>does come back, certainly, UM, We definitely expect when the

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<v Speaker 1>market starts to reopen, PE will be a strong UM

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<v Speaker 1>influencer of those companies coming to market. Right now, PE

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<v Speaker 1>is being cautious where with where they put their investments

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<v Speaker 1>UM today, and we're seeing them place more investments into

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<v Speaker 1>their current portfolios UM and helping those portfolio companies really

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<v Speaker 1>prepare UM be you know, improve their strength and viability

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<v Speaker 1>through you know these you know, you know, unpredictable times

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<v Speaker 1>that everybody's facing right now, you know. H I wonder

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<v Speaker 1>geographically if there were any areas of the country that

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<v Speaker 1>were hit harder in this slowdown in I p O

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<v Speaker 1>s than others geographically UM hard to say, particularly across

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<v Speaker 1>the US if that's your focus, but certainly the text

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<v Speaker 1>sector overall. So then you could say the West Coast

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<v Speaker 1>UM has been you know hit in and outside me

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<v Speaker 1>and are a lot of that is really when you

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<v Speaker 1>think about those who went public in one and their

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<v Speaker 1>performance today currently trailing well below the market UM, does

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<v Speaker 1>not bode well for the tech sector, and so that's

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<v Speaker 1>been impacting certainly that West coast. Yeah, and I kind

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<v Speaker 1>of follow up on that a little bit. I mean,

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<v Speaker 1>there was a call to be made over to last

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<v Speaker 1>I don't know, really a dozen years. There's so much

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<v Speaker 1>venture capital money out there, so much private equity money

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<v Speaker 1>out there, that a company really didn't need to come public,

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<v Speaker 1>or did need to come public as soon as maybe

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<v Speaker 1>it historically did, it could wait a little bit. Is

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<v Speaker 1>that still the case, or is some of that VC

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<v Speaker 1>money and PE money kind of I don't know. Pulling back,

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<v Speaker 1>maybe I would say there's certainly a lot of dry

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<v Speaker 1>powder still out there with PE and VC. They're they're

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<v Speaker 1>definitely being more cautious in how they put that money

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<v Speaker 1>to work. We'll see how UM that trend continues throughout

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<v Speaker 1>three But they're proceeding in making investments cause just Lee

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<v Speaker 1>and UM, you know, carefully reviewing UM. What they're looking

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<v Speaker 1>to invest in. E S G is a prime topic

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<v Speaker 1>that UM a lot of that. We're seeing an increased

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<v Speaker 1>focused UM from PE in particular through due diligence and

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<v Speaker 1>so forth. But I definitely think PE and BC will

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<v Speaker 1>continue putting their funds to work UM and that will

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<v Speaker 1>always provide companies, you know, opportunity for additional capital. But

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<v Speaker 1>with rising rates the cost of debt, that's certainly going

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<v Speaker 1>to impact PE and VC. So that's where the math

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<v Speaker 1>and the I p O math may start to work,

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<v Speaker 1>may not for certain companies who just need the capital.

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<v Speaker 1>All right, Rachel, good stuff, will really appreciate it. Rachel Garring,

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<v Speaker 1>I p O leader for e Y America's joining us

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<v Speaker 1>via zoom from Nashville, Tennessee. And I'll read that data again.

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<v Speaker 1>I mean, I don't think I've ever seen that. E

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<v Speaker 1>Y recently released its quarterly IPO data report, which shows

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<v Speaker 1>overall deal proceeds drop nine and you get the numbers here,

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<v Speaker 1>A hundred fifty five billion last year, nine billion years.

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<v Speaker 1>Go figure man. I will say, though, Paul, you know,

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<v Speaker 1>and listeners on the radio can't see this. But Rachel

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<v Speaker 1>has the most festive zoom background. Is it's very good.

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<v Speaker 1>Good to see her holiday spirits not been impacted. Rachel.

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<v Speaker 1>Gearing from e Y America is good stuff. They're looking

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<v Speaker 1>at these markets again. We closed higher today, you know,

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<v Speaker 1>we'll take that. I mean it was a week and

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<v Speaker 1>it's good for a Friday. We've got Christmas eve Eve

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<v Speaker 1>and we'll come back. We'll finish out the year next week,

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<v Speaker 1>and then we'll start off a new year, hopefully a

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<v Speaker 1>better year for equity and fixing the markets. This is

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<v Speaker 1>Bloomberg