Is the IPO market out of lockdown?

For the last two months, the coronavirus has all but shut the doors on equity capital markets outside of niche opportunities and biotech offerings. However, since the mid-March peaks in volatility, as measured by the CBOE Market Volatility Index (VIX), markets have rallied, and volatility has continued to decline, leaving many to wonder when and if we will see companies test the waters of raising capital through an Initial Public Offering (IPO).

Kingsoft Cloud’s May 8th IPO (Nasdaq: KC) represented that test as the first major listing in the U.S. in two months. The stock priced at $17 per share, raised $510 million and closed on the first day up 40%. While the deal was heralded as a success, it was not a perfect mark for many U.S. venture backed companies waiting in the wings to make their debut. The company was domiciled in China, spun out of Kingsoft Corporation (3888.HK), and backed by one of China’s most prominent billionaires in Xiaomi co-founder and CEO of Kingsoft, Lei Jun. Today marks a new milestone in equity capital markets with SelectQuote (NYSE: SLQT) pricing its upsized IPO above the initial range yesterday to raise $360 million. Based on our conversations, the offering was well-received by institutional investors with the deal nicely oversubscribed even after the 3.5 million share upsize. The stock closed the day at $27.00 (up 35%) despite the weak tape and it now seems the IPO window has officially opened for more activity.

Who is next to test the waters of coming public with a virtual roadshow and a host of global economic unknowns? Some of the most talked-about names have been Vroom, with their $100 million S1 filing last week and private equity backed ZoomInfo with a widely anticipated $500 million offering. While investor risk appetite has seemingly bounced back from March's doldrums, we will be interested to see how much the focus returns to profitability and measured growth as opposed to the growth at all costs mentality that marred many of the headline IPOs of 2019. We believe that companies with the right scale, revenue visibility, and profitability prospects may consider raising capital via an IPO. With potential headwinds from an upcoming election and perhaps data indicating a prolonged economic downturn in the months ahead, it seems companies may have a narrow window for accessing the public markets.

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