The U.S. initial public offering pipeline came back to life with a bang on Monday, as five companies set terms for their planned deals, including online scrapbooking site Pinterest.
The flurry of activity comes after a dull first quarter, in which deal flow was even slower than is typical for that time of year, partly because of the government shutdown in January.
“It was close to a market shutdown from the end of the year, really into March,” said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds.
The slowdown was felt around the world, according to a survey by EY, the former Ernst & Young. There were just 199 deals in the quarter to raise $13.1 billion, the survey found. That’s a 41% decline in deal number and a 74% decline in proceeds from the same period in 2018.
“While Q1 is usually a quiet IPO quarter across regions, in 2019 we’ve seen IPO markets sent into a cautious wait-and-see mode as a number of factors collide,” said Dr. Martin Steinbach, EY global and EMEIA IPO leader. “The dense fog of ongoing geopolitical tensions, trade issues among the U.S., China and Europe, as well as uncertainty as to how the UK will leave the European Union, slowed down IPO activity in all regions.”
The usual pattern after a period of drought is for the deals that come to be the strongest fundamentally and most attractively valued, said Smith. But that was not what happened with ride-sharing service Lyft
which flopped in its debut and is currently just pennies above its IPO price of $72.
“Investors are not comfortable with the valuation,” she said. “They’re having a hard time trying to figure out how to value that company and it will be hard with Uber too,” she said, referring to Lyft’s bigger rival which is also planning to go public this year.
The ride-sharing rivals are two of the ‘decacorns’ expected to list this year, or startups that have been valued at more than $10 billion by private investors. Others include instant messaging service Slack, home-sharing company Airbnb and secretive security company Palantir Technologies.
The good news is that Pinterest
which set terms for its own deal early Monday, launched at a discount to its last private round of financing, “which tells you that they are adjusting to IPO market realities,” Smith said.
Pinterest set its price range at $15 to $17 a share, giving it a valuation of up to $11 billion, below the $12.3 billion it was valued at in a funding round in 2017 that was priced at $21.54 a share. Pinterest has a powerful business model in its display ads, which allow users to see and compare products they are interested in, according to Renaissance.
The other companies that set terms Monday were Zoom Video Communications, a San Jose, Jose, Calif.-based video-first communications platform provider that is offering 10.9 million class A shares in the IPO to raise $348.1 million, while selling stockholders are offering 10 million class A shares.
Palomar Holdings Inc., a specialty insurer, said it is offer 5.6 million shares priced at $15 to $17 each. And biotechs Hookipa Pharma and Turning Point Therapeutics set terms for their deals.
Monday’s deals are expected to price next week after investor roadshows. But this week’s pipeline includes Jumia Technologies
an African e-commerce company that offers investors an emerging markets play in a high-growth business.
“From an investment standpoint, it’s losing a lot of money,” said Smith. “But people are excited about growth in Africa and there’s very little e-commerce there. There are challenges in logistics and different languages that make it hard to evaluate.”
The two other deals expected are cybersecurity company Tufin Software Technologies
and IT monitoring company PagerDuty Inc.
The Renaissance IPO ETF
has gained 32% in the year to date, while the Renaissance International IPO ETF
has gained 15%. The S&P 500
has gained 15% and the Dow Jones Industrial Average
has added 13%.