Justworks IPO Postponed

Cites unfavorable 'market conditions'

Business software company Justworks Inc., which specializes in human resources applications, has decided to postpone its initial public offering (IPO), which was due to be priced late on Jan. 12, 2022, and to begin trading on Jan. 13.  "Justworks has decided to delay its IPO due to market conditions at this time," according to a statement from the company.

Justworks plans to keep its prospectus on file with the Securities and Exchange Commission (SEC) and will continue to update it, a source familiar with the situation told Barron's. Meanwhile, Justworks' decision comes amid a general selloff among technology and software shares.

Key Takeaways

  • Business software company Justworks has delayed its IPO, citing unfavorable "market conditions."
  • This decision comes amid a slowdown in IPO activity and a selloff among tech and software shares.
  • Investors may be discouraged by the fact that 68% of IPOs that came to market in 2021 are trading below their offering prices.

Challenging IPO Environment

Some observers believe that the withdrawal of the Justworks offering suggests that the IPO window is closing. IPOs enjoyed their busiest year ever during the first 11 months of 2021, but inflation and fears about the omicron variant of COVID-19 put the brakes on IPO activity in December, when only a dozen companies went public.

Recently, four biotech companies have gone public, posting poor results. In particular, Hillstream BioPharma Inc. (HILS) dropped 13% from its offering price, making it a so-called broken deal.

More broadly, out of approximately 400 companies that went public in 2021 through traditional IPOs, only about 32% are trading above their offering prices. As a result, 68% are currently trading below their IPO prices.

Matt Kennedy, senior IPO strategist at Renaissance Capital, observed: "Demand dries up when returns sink. When investors lose money on IPOs, they start to demand steep discounts to buy new coming deals."

That does not mean that companies will be unable now to launch IPOs. Rather, any companies that go public now probably will have to do so at significant discounts to their publicly traded peers, Kennedy elaborated.

Private-Public Disconnects

A related issue with IPOs is what can be called a "private-public disconnect." This represents a gap between what a private company thinks about itself, including what its results are worth, and what the investing public's view of that company is. It also can be a situation in which investors in the public securities market simply are making rather different valuations than the private markets. Tech-focused website Tech Crunch believes that the latter issue is definitely a problem for Justworks, and that the former may be as well.

TPG Bucks Tend

TPG, the alternative asset management company best known for its prior ownership of Burger King, appears to be bucking the trend. Its IPO, which began trading on Jan. 13, 2022, under the symbol TPG, is reportedly almost 10 times oversubscribed.

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  1. Barron's. "The IPO Window Is Closing as Listings Bring in Dismal Results."

  2. Tech Crunch. "Unicorn Exits Augur Poorly as Justworks Delays IPO, Citing 'Market Conditions'."

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