Earlier this year, UBS global co-head of equity capital markets Gareth McCartney said that, while there had been “a bit of a gap on valuation expectations between the buyers and the potential sellers” in 2024, this had now “normalised with what we saw in secondary markets”.
While it’s too early for a definitive verdict, two US IPOs this week and last will not offer much consolation to issuers and bankers hoping the gap had closed.
Last Friday, natural gas company Venture Global priced its IPO at $25 per share, far below its proposed range of $40-$46.
And on Monday, meat company Smithfield Foods' IPO was priced at $20 per share, also below its proposed range of $23-$27.
While investors’ unwillingness to share issuers' views may seem surprising in light of strong stock market performance this year, their behaviour has to be considered in the context of a market filled where the known unknowns could be very consequential.
US president Donald Trump’s erratic style of governance is the first impediment to stability. From threatening imminent tariffs on Mexico and Canada as GlobalCapital went to press on Thursday, to a sudden federal funding freeze, he has put the stock market on high alert.
And yet the year’s largest price drop was instead caused by unheralded Chinese start-up DeepSeek, which knocked a record $589bn off Nvidia’s valuation in a single day when the market took notice of its comparative efficiency in AI.
Add in fears of economic slowdown, lingering inflation, and an uncertain rate path and IPO investors can be forgiven for their unwillingness to place too much faith on young companies with unproven records.
Sellers may have hoped there would be a greater chance to shake hands over a bargain with investors this year but it looks like they'll have to stretch a little further over the table.