MW UPDATE: IPO market has begun pushing back on growth-at-all-costs private companies
By Ciara Linnane, MarketWatch
Struggles at WeWork and Peloton's lackluster debut suggest the IPO window is closed for highly valued, loss-making companies
Endeavor Group Holdings canceled plans for an initial public offering Thursday, the latest sign that the IPO market is slowing down.
The move came as Peloton Interactive Inc.'s stockstruggled in its trading debut, and after We Co. , the parent of the office-space company WeWork, postponed its IPO (http://www.marketwatch.com/story/wework-makes-it-official-puts-its-ipo-on-hold-2019-09-17) and forced its chief executive to step down (http://www.marketwatch.com/story/wework-co-founder-and-ceo-adam-neumann-is-stepping-down-2019-09-24) amid mounting concern about its huge losses and high leverage.
See also: Peloton stock spins in reverse during trading debut (http://www.marketwatch.com/story/peloton-stock-spins-in-reverse-during-trading-debut-as-ipo-market-cools-down-2019-09-26)
"The IPO window is closing on growth-at-all-costs, highly valued private companies that are trying to come to market with excessively valued pricing," said Kathleen Smith, principal at Renaissance Capital, (https://www.renaissancecapital.com/IPO-Investing/US-IPO-ETF) a provider of institutional research and IPO exchange-traded funds.
Endeavor , an entertainment powerhouse that owns sports and modeling agency IMG and mixed-martial-arts organization UFC, among other properties, said earlier Thursday that it would trim its offering to 15 million shares priced at $26 to $27 each, down from 19.4 million shares priced at $30 to $32 each that it targeted in a filing on Sept. 16. After markets closed, the company announced that it would delay the IPO (http://www.marketwatch.com/story/endeavor-reportedly-pulling-its-ipo-after-peloton-struggles-2019-09-26) and "continue to evaluate the timing for the proposed offering as market conditions develop."
Don't miss:Entertainment giant Endeavor is going public: 5 things to know ahead of its IPO (http://www.marketwatch.com/story/entertainment-giant-endeavor-is-going-public-5-things-to-know-ahead-of-its-ipo-2019-05-31)
Smith said after the offering was reduced that she expected the company to complete the deal, given that it is profitable and has a record of putting together media properties and talent, but conceded investors are sensitive about overpaying in the current market.
"It's called price discovery, and it's a cleansing process that will make for better days ahead," she said.
China's Wanda Sports Group Co. Ltd.(WSG) , which is viewed as an Endeavor comparable, had a difficult IPO in July, when it priced a downsized deal at $8 a share, about double where it is trading today, Smith said.
"We know the market has been jittery and IPOs in general are seeing multiple contraction," she said, citing recent pullbacks in Zoom Video Communications , streaming platform Roku(ROKU) and cybersecuritiy company CrowdStrike as examples. CrowdStrike(CRWD) , which went public in June, has a one-month negative return of 30%, she said.
"Even the IPO ETF has had a pullback related to this," she said. "Any company looking to go public and their underwriters should be looking at that."
See:Peloton IPO: 5 things to know about the interactive exercise-machine company (http://www.marketwatch.com/story/peloton-ipo-five-things-to-know-about-the-interactive-exercise-machine-company-2019-08-28)
(http://www.marketwatch.com/story/peloton-ipo-five-things-to-know-about-the-interactive-exercise-machine-company-2019-08-28)WeWork said earlier this week that co-founder and Chief Executive Adam Neumann is resigning from that role, amid mounting concerns from some of the company's big investors about huge losses and liabilities. The company has inevitably been compared with Uber(UBER) and Lyft(LYFT) , the ride-sharing giants that went public this year in deals widely viewed as flops.
"Softbank's Vision fund has invested in many highfliers such as Uber, WeWork and Slack," said Per Roman, co-founder and managing partner of boutique investment bank GP Bullhound.
Don't miss: WeWork is going public: 5 things to know about the office-sharing company (http://www.marketwatch.com/story/wework-is-going-public-5-things-to-know-about-the-office-sharing-company-2019-08-14)
Those companies relied on increasingly extravagant funding rounds that came at higher and higher valuations: "land grabs fueled by venture capital," he said.
Read also:Uber stock is a buy-one-get-one-free deal, analyst contends (http://www.marketwatch.com/story/uber-stock-is-a-buy-one-get-one-free-deal-analyst-contends-2019-09-16)
Even Oracle (http://www.marketwatch.com/articles/oracles-larry-ellison-calls-uber-and-wework-almost-worthless-51568924122)(ORCL)founder and Executive Chairman Larry Ellison (http://www.marketwatch.com/articles/oracles-larry-ellison-calls-uber-and-wework-almost-worthless-51568924122) has criticized the trend, describing Uber and Lyft as "almost worthless" at a September event in San Francisco, as MarketWatch sister publication Barron's reported.
The Renaissance IPO ETF(IPO)has fallen about 7% in the last three months but remains higher by 23% on the year, outpacing the S&P 500's18% gain and the Dow Jones Industrial Average's15% rise.
-Ciara Linnane; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
September 29, 2019 13:03 ET (17:03 GMT)
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