The first quarter of 2021 was a boom time for initial public offerings, as investors lapped up whatever new stock was put in front of them with seeming disregard for the price they were being asked to pay. The result? A crop of new stock listings that subsequently struggled to convince the wider market of their value, and have performed poorly since going public. Having been burned, IPO investors should be expected to drive a harder bargain with bankers in 2022.
It’s clear that buyers of new issues could have been more demanding when it came to the discount that’s meant to apply to IPOs. The idea is that a cheap valuation relative to already-listed peers compensates for the riskiness of buying an unproven stock that has no trading history. Look at Europe’s vintage — only four of the IPOs that raised over $500 million in the first quarter have outperformed the Stoxx Europe 600 Index.