IPOs test deep freeze in US listings market

Two initial public offerings this week are testing the deep freeze in the US listings caused by the sharp drop in stock prices since the coronavirus outbreak roiled markets.

Zentalis Pharmaceuticals, a US biotech group focused on cancer treatment, aims to raise as much as $138m in a listing set for Friday, according to two sources familiar with the deal. This follows the Wednesday IPO of WiMi Hologram Cloud, a Chinese technology group specialising in augmented reality for advertising, which raised $26m and ended the day flat despite a 4.4 per cent fall in US stocks. 

The deals, both on the Nasdaq exchange, offer the first glimpse of investor appetite for IPOs since US stocks entered a bear market in early March, prompting at least 20 companies to postpone flotations, according to Renaissance Capital.

Only four companies listed in the US last month, the lowest tally since August last year, ending a spurt of activity that brought 21 IPOs in the first two months of this year. The $1.5bn raised in the March flotations was the lowest sum since November. Follow-on deals, where listed companies raise more money by releasing new shares, slumped to $2.3bn, the worst month since August 2011.

“We’re in unprecedented times,” said Jeff Thomas, head of western US listing for Nasdaq. “The next IPO window will be late June or early July. Everyone who was close to launching is now on hold and they’re taking things week to week.”

The two deals this week are small. Zentalis has a market capitalisation of $559m, based on the midpoint of its listing price range, while WiMi has a market cap of $326m. Despite this, investors are closely watching the two IPOs to gauge the health of new listings during one of the most volatile periods of trading for the stock market, said Michael Underhill, chief investment officer for Capital Innovations, an active investor in new listings.

Zentalis would attract investors who believed the biotech and medical technology sectors would fare better than areas such as travel, which were taking a more direct hit from the slowing economy, he said. “Investors are looking for the next growth story — med-tech and pharma offer that.” 

Morgan Stanley is the lead underwriter for the Zentalis IPO and The Benchmark Company led the WiMi listing.

The dearth of US flotations reflects a challenging moment for corporate finance in which businesses around the world are raising record sums in the bond market to weather the downturn.

Investors anticipated a rush of deals before the summer to avoid the typical market swings ahead of the November presidential election. Big names such as Airbnb, the short-term rentals group, and food-delivery rivals Postmates and DoorDash, were among those expected to list.

“The 2020 IPO market began with optimism and ended with the worst crash since the global financial crisis,” said Bill Smith, chief executive of Renaissance Capital.