Via Financial Times

A burst of US stock market listings is expected in coming months after coronavirus forced a pause in new launches.

Six companies have filed plans to float in the US in the past two weeks, surpassing all the filings in April, according to data provider Refinitiv. The list includes online car dealer Vroom and fintech provider Shift4 Payments, and bankers say a smattering of other large companies could soon join them.

While many companies have binged on debt to tide them through the coronavirus shock over the past two months, private companies put off plans for initial public offerings. Some companies whose listings have been hotly anticipated, such as short-term rental site Airbnb, have obtained the funds they need through rounds of private funding. That could soon change.

The market for public equity sales “is picking up sooner than anticipated,” said Neil Kell, chairman of global capital markets for Bank of America. “You’re going to see a wave of IPOs come to market that are larger rather than smaller because in volatile markets investors want more liquidity. This is not a market where the marginal, smaller IPO will get done.”

New listings had come to a standstill as the stock market fell dramatically in March and volatility spiked. Only recently has the Cboe’s Vix, a measure of expected gyrations in the benchmark S&P 500 index, fallen below 30 — still high but far below the record 85 hit in March during the most intense phase of the coronavirus-induced sell-off.

Line chart of Cboe volatility index showing Vix eases from peak as markets calm

New listings could be welcomed by investors, even if volatility remains elevated. SelectQuote, an online insurance comparison platform, sold shares on Wednesday, raising $570m. The IPO was the largest in the US since the start of February and shares in the company ended their first day of trading up 35 per cent. 

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“We’re seeing signs of the IPO market reopening and it is being led by growth equity,” said Paul Abrahimzadeh, co-head of North American equity capital markets for Citi. “With yields at record lows, capital that has the ability to flow between asset classes is moving into equities.”

The trouble facing many groups, including some in dire need of cash, is that the drop in business and consumer spending caused by coronavirus has weakened first- and second-quarter revenues, prompting some to postpone a listing altogether.

So far just 34 companies have floated in the US this year, raising $9bn — the lowest tally since 2016, according to data from Refinitiv. The drop has squeezed fees for underwriters on Wall Street and stands in stark contrast to last year, when deals from ride-hailing groups Uber and Lyft sent the total for the same period to $25.5bn.

Column chart of Number of initial public offerings by year from January to May 21 showing US listings market off to slowest start in four years

Used-car retailer Vroom, which filed for its IPO on 18 May and is backed by T Rowe Price, the US fund manager, and Bill Gates’ Cascade investment office, disclosed it had furloughed one-third of its staff this month and initiated salary cuts for remaining employees. The company recorded widening net losses of more than $140m last year on revenues of almost $1.2bn and came into May with about $160m of cash on hand.

Other companies that have registered to list this year include Warner Music and Albertsons, the supermarket chain — two groups that filed paperwork prior to the market sell-off and are still actively planning an IPO in coming months.

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