FirstFT: Private equity circles fallen stars of pandemic IPO boom

Good morning. Three-quarters of large US companies that went public during the Covid-19 pandemic bull market are trading below their offering price, forcing some once-promising names back into private hands at fire-sale valuations.

Of more than 400 listings where companies raised at least $100mn between 2019 and 2021, 76 per cent are below the price at their initial public offering, a Financial Times analysis of Dealogic data shows. The group of companies’ median return since their respective IPO dates is negative 44 per cent.

The laggards include such-hyped stocks as Robinhood Markets, Lyft and DoorDash, all of which went public during a market boom that ended in late 2021. The Nasdaq Composite index, which contains many growth companies, has fallen 32 per cent this year.

With share prices plunging, private equity groups are aggressively circling newly public companies as potential buyout targets, according to several Wall Street executives. And some corporate boards have been receptive.

“When you think about the amount of private capital that has been raised that hasn’t been deployed, then look at how public equity valuations have re-rated, it feels like it’s going to be a natural pairing up,” said David Bauer, who runs equity capital markets at KKR, the investment group known for its private equity business.

Thanks for reading FirstFT Americas. Here’s the rest of the day’s news — Gordon

Five more stories in the news

1. ExxonMobil accuses Russia of ‘expropriation’ The US oil supermajor said President Vladimir Putin’s government had “unilaterally terminated” its interest in the Sakhalin-1 oil and gas project in Russia’s Far East region and that the field had been transferred to a domestic operator. The move increases the likelihood of a multibillion-dollar legal fight with the Kremlin.

• Go deeper: With the dangers of escalation in the Ukraine war mounting — alongside the death toll — the absence of serious diplomatic efforts to end the conflict is both striking and worrying, writes Gideon Rachman.

2. Foxconn aims to supply almost half of world’s EVs Foxconn aims to manufacture almost half of all electric vehicles sold globally, it said earlier today, as it launched two new prototype EVs. The iPhone maker has cornered 40 to 45 per cent of the world’s information and communications technology market, especially in personal computers and mobile phones.

3. EY’s US partners flouted conflict of interest rules, says regulator One in three of EY’s US audit partners has flouted its policies for preventing conflicts of interest, the industry regulator said yesterday. Among lower-level managers, the rate of non-compliance with its financial disclosure rules was even higher, at almost half, according to a Public Company Accounting Oversight Board report.

4. Hunt rips up Truss’s economic policy Liz Truss apologised for the economic chaos that followed last month’s “mini” Budget after UK chancellor Jeremy Hunt scrapped two-thirds of the £45bn unfunded tax cuts proposed by his predecessor and warned of “eye-wateringly difficult” decisions to come. The move reassured markets but left the prime minister’s future hanging by a thread.

5. South Korea launches military drills with the US as tensions mount with the North South Korea embarked on a round of military exercises yesterday amid heightened tensions on the Korean peninsula. The annual drills will simulate a range of threats from North Korea, including the use of nuclear weapons, and will involve troops from across the South Korean armed forces as well as some US soldiers.

The day ahead

Outlook for markets Stock markets extended their gains today, as the UK’s U-turn on planned tax cuts bolstered sentiment ahead of a fresh batch of Wall Street corporate earnings. The expected gains in equity markets follow a sharp rally in the previous session, with the S&P closing 2.7 per cent higher yesterday.

Bank earnings Goldman Sachs could formally announce plans for a major reorganisation today as it reports third-quarter earnings. Profits at Goldman, the last of the six biggest US banks to report, are expected to almost halve to $2.86bn from $5.28bn, according to analysts polled by Refinitiv. Yesterday, Bank of America raised its annual revenue outlook.

Netflix Investors will be keen for more details from the streaming giant on its subscriber growth outlook and its new ad-supported tier. In April, Netflix reported a subscriber loss for the first time in a decade, a trend that continued into the last quarter.

Other earnings Healthcare company Johnson & Johnson, investment manager State Street and defence group Lockheed Martin report before today’s opening bell. After the closing bell, United Airlines is expected to report its strongest earnings since the start of the pandemic as high air travel demand has carried into the autumn.

Monetary policy Atlanta Federal Reserve president Raphael Bostic will discuss what lies ahead for workers in an uncertain economy during a virtual panel hosted by Workrise. Separately, Minneapolis Fed president Neel Kashkari will speak about the economy on a panel before the Minnesota chapter of Women Corporate Directors.

What else we’re reading

Latin America’s inflation lessons for the G7 Latin America was quick off the mark to raise interest rates, beginning with Brazil in March 2021 — a full year before the US Federal Reserve. Chile and Colombia were not far behind Brazil and Peru and Mexico have followed. The tactics appear to be working, writes Latin America editor Michael Stott.

Plight of expat workers at KPMG Saudi Arabia For many western expatriates, the prospect of working in well-paid positions at KPMG Saudi Arabia is thrilling. But workers’ rights and the rule of law are still issues in the kingdom. The FT has reviewed the circumstances surrounding seven departures from the company since 2018. Many say they feared for their personal safety, in particular when the terms of their exits were being negotiated.

All the emperor’s men Our interactive story explores how Xi Jinping became China’s unrivalled leader — and how he plans to expand his power base. The most powerful ruler of China since Mao Zedong, Xi has centralised decision-making in ways his recent predecessors could not have dreamt.

France’s central bank boss warns of ‘vicious loop’ in UK François Villeroy de Galhau has said the recent turmoil in UK government bond markets demonstrates the consequences if governments undermine rate-setters’ efforts to curb soaring inflation, highlighting the importance of “a consistent policy mix” between central banks and lawmakers.

Israeli work permits offer relief to ‘exhausted’ Gaza economy Thousands of people in Gaza, where unemployment is close to 50 per cent, have applied for a permit to work in Israel in the past year. Israeli leaders, who have repeatedly made clear the work permits are contingent on a calm security situation, last month increased the number by 1,500 to 17,000. For those lucky enough to get one, a permit can be life-changing.

Books

The Sri Lankan author Shehan Karunatilaka has won the 2022 Booker Prize for his genre-defying second novel, The Seven Moons of Maali Almeida. Neil MacGregor, the art historian and chair of this year’s judges, described the book, set in 1990 during the Sri Lankan civil war, as “an afterlife noir that dissolves the boundaries not just of different genres, but of life and death, body and spirit, east and west”.