(Bloomberg) -- The recent bout of stock-market turbulence threatens to put the brakes on what had been a brisk summer for US share sales.
Thoma Bravo’s divestment of half of its Nasdaq Inc. stake for $2.7 billion brought last week’s volume to $4 billion, the most since May and the third consecutive week when sales topped $2 billion. The six months through the end of July was the busiest of any half-year since 2021, according to data compiled by Bloomberg, aided by calm markets and indexes that kept climbing.
Investment bankers and issuers had expected the streak to continue, if not accelerate, as earnings season came to an end and companies emerged from their so-called blackout periods. That’s in doubt, at least for now, as market upheaval sends volatility sharply higher.
“It’s too soon to press the panic button, but investors and companies are likely to press the pause button,” said Christian Munafo, chief investment officer of Liberty Street Advisors.
The VIX index — Wall Street’s “fear gauge” and a key measure of volatility — spiked on Monday amid a market-wide meltdown caused by concerns that the US economy is slowing and the Federal Reserve may be late to respond. Despite a strong bounce back in shares on Tuesday, the VIX remained above 20 — often seen as the level of stability required to ensure a deal can go through without being adversely affected by broad market swings.
For most of the year, the VIX stayed well below 20, creating a optimal environment for secondary share sales even as initial offerings remained relatively subdued.
The activity included a summer spurt in July — typically a slow month in the equity capital markets with portfolio managers often on holiday. Secondary share sales in the month approached $10 billion, according to data compiled by Bloomberg, compared with $3.4 billion and $2.8 billion in the same period over the prior two years, respectively.
The broadening of stock gains before the recent slump set companies up to tap the market for fresh capital. Aurora Innovation Inc. and Permian Resources Corp. both raised more than $400 million last week by issuing shares to replenish working capital.
And any lull may be brief — activity may roar back should the market settle down again. Year to date, shares sales remain on track to be the highest since 2021. And with stocks still broadly higher this year despite the recent rout, private equity firms are in a good position to sell down their investments.
“There are still stocks up year-to-date in the double digit,” said Dan Klausner, head of US public equity advisory at Houlihan Lokey Inc. “Sponsors might not realize the same stock price as on July 1, but the value of their stock is still elevated from January.”
Of the 500-plus companies that went public since 2022, 167 have gained more than 50%, and 15 of them have more than doubled their IPO price, data compiled by Bloomberg show. That includes chip designer Arm Holdings Plc and plane parts maker Loar Holdings Inc. Loar, backed by Abrams Capital Management LP, GPV Loar LLC and Blackstone Alternative Credit Advisors LP, will have its IPO lockup expire in late October.
While calm may eventually return, companies and investors looking to raise capital after the latest jolts may have to be willing to accept a little less.
“Discounts have widened now versus last week, irrespective of sector,” said Houlihan Lokey’s Klausner.
--With assistance from David Morris.
©2024 Bloomberg L.P.
