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iFit Delays Its Debut As Wobbly Stocks Send A Chill Through The IPO Market

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iFit was ready to take on Peloton. The company behind NordicTrack and other home fitness brands had an IPO teed up for this month, with plans to raise nearly $650 million and establish an initial market cap of $6.6 billion. But on Thursday, iFit postponed the offering, citing those three words that represent the great fear of every company on the brink of going public: “adverse market conditions."

Market conditions have been the opposite of adverse for much of 2021. A surging stock market has helped fuel a record-setting year for IPOs, with $155 billion in total IPO proceeds raised so far this year, according to Renaissance Capital—nearly double the previous decade-high.

But the winds could be shifting. In September, public-market indexes posted their worst returns in any month since the start of the pandemic. And the rate of companies cancelling IPOs has ticked up. iFit wasn’t alone this week: Wristwatch retailer Chronext and biotech startup Aeon Pharma also postponed listings. Others, such as Allvue Systems and Knowlton Development Corp., have delayed IPOs in recent weeks. And some of the major IPOs that did go off have underwhelmed, including this week’s debut from fitness chain Life Time Group.

It’s not like the pipeline is drying up. Plenty of other companies filed for IPOs this week that should result in billion-dollar-plus valuations, including GlobalFoundries, Rent the Runway, Udemy, GitLab and NerdWallet. Even if the hottest IPO market in history cools off a little bit, it will still be plenty warm. The point is that the signs of cooling are beginning to mount.

I spoke this week with Reena Aggarwal, who researches markets and IPOs in her work as the director of the Georgetown Center for Financial Markets and Policy. She was quick to point out that this year’s IPO spike isn’t some isolated phenomenon. It’s inseparable from the broader surges in both valuations and deal activity that have occurred during the pandemic across public and private equities.

“The number of IPOs coming in and the valuations that they’re getting, it’s driven by what’s happening in the overall market,” Aggarwal told me.

She outlined some of the key factors driving companies to go public in record-setting droves. Valuations in the public market have soared over the past year-and-a-half. That means wealthy individuals have done well, and now have more money than ever to invest. Yields on bonds remain low, so in pursuit of bigger returns, those individuals are choosing to pump a substantial portion of their pandemic profits back into the stock market—where IPOs offer the potential for some of the biggest returns of all.

“The combination of high valuations in the market, high net worths, low yields on the fixed-income side, it all adds up to a good time for anybody that wants to do an IPO,” Aggarwal continued. “It doesn’t get any better than this."

But “this” might not last much longer. In fact, “this” might already be coming to an end.

“Suddenly, I think market volatility has picked up,” Aggarwal said. “And a couple of factors are driving it: Inflation, supply chain issues, interest rates picking up. And the whole debt-ceiling discussion in Washington. At some point, there has to be a market correction."

Stock markets are funny things. They are, in some respects, the largest and most expensive psychology experiments ever conducted in human history, places where investor sentiment can be just as important as financial fundamentals in driving a company’s outcome. Or, in the case of a company like GameStop, sentiment can be much, much more important than fundamentals.

That’s one way in which this year’s IPO onslaught diverges from the wider avalanche of deals, according to Marc Cooper, the CEO of investment bank Solomon Partners (formerly PJ Solomon). The fact that the market is an amalgam of millions of different investors with a wide range of experience levels can make it a difficult beast to tame.

“The difference in the IPO market is that you get a bit more irrational exuberance than you do from, say, the M&A market,” Cooper told me. “Where you get some of it, yes, multiples are up, but it’s just so far that they’ll go up, because you have pretty sophisticated investors on both sides of the trade. In the IPO markets, it’s the market, right? And the market can do some crazy things."

The market can also follow the crowd. In some respects, the factors causing the market to wobble and investors to delay public debuts don’t really matter. The wobbles themselves can be a self-fulfilling prophecy.

“It’s all about muscle memory, right?” Cooper said. “If the last five deals went up, then they’re going to continue to invest. When the IPO markets stop is when performance is poor. Sort of like what happened in the SPAC market to some degree—performance hasn’t been what people expect, so it slowed down. It’s a natural regulator."

What’s past is prologue. If the IPO hesitancy keeps up, then expect more IPO hesitancy to abound.

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