Highly Volatile Stock Market Makes TPG’s IPO a Test Case

Bankers say yesterday’s initial public offering from private-equity firm TPG (TPG) is a good test of where the IPO market is headed this year. Analysts had expected the shares to be offered anywhere between $28 and $31, with TPG ultimately settling on a midpoint of $29.50 per share.

Analysts note timing is tricky for TPG as conditions are far from smooth within equity markets. Stocks have taken a hit in the midst of high volatility, with the Nasdaq Composite down 2.9% since the start of the year through Wednesday. In fact, payroll-software and HR company Justworks Inc. had planned its IPO for yesterday but decided to postpone due to the current environment.

Private Equity Firms Are Strong Performers During the Pandemic

Though market conditions are a reason to give pause, investors say TPG’s status as a private equity firm is attractive. Analysts link this in part to the Fed’s easy-money policy throughout the pandemic. Specifically, institutional investors have benefited from cheap debt financing, sending private equity stocks soaring.

Shares of industry titan Blackstone (BX) doubled over the past year when including dividends. With interest rates low, money was consistently invested into the asset class. Now that Fed officials have signaled interest rates will rise, some in the investment community predict a potential negative impact on the IPO market.

Rising Interest Rates and Inflation Threaten the IPO Market

Analysts explain rising interest rates and the threat of inflation could derail the IPO market this year. Namely, investors are wary of recent struggles observed among newly listed companies. A record amount of money was raised via IPOs in 2021, but those same stocks hit the skids during Q4 the same year.

As the calendar flipped to 2022, only one-third of last year’s traditional IPOs were trading at or above their IPO price. Earlier this week, financial markets platform Dealogic reported companies that went public last year are down 17% on average, excluding special-purpose acquisitions. Analysts say the combination of rising interest rates and persistent inflation has left investors unnerved. As such, industry observers maintain this combination of downward pressures makes TPG’s IPO an important test case.

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