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In 5 Years, Only 21.6% of New Companies on the Stock Exchange Have Seen Their Shares Rise

Writer's picture: Seneca Evercore | NotíciasSeneca Evercore | Notícias

(Folha de S. Paulo) Retail, technology, and construction sectors dominated IPOs but performed the worst over the period

Stéfanie Rigamonti Of the 74 companies that debuted on the Brazilian stock exchange since 2018, only 16 of them—or 21.6%—achieved positive performance compared to their IPO (Initial Public Offering) price, according to a survey by Seneca Evercore.


Among the top performers are construction company Cury, waste treatment company Orizon, fashion retailer Track&Field, logistics operator Wilson Sons, and jewelry retailer Vivara.


Conversely, companies that led the declines since their IPOs include furniture retailer Mobly, investor platform TC, loyalty program provider Dotz, laser hair removal chain Espaçolaser, and logistics company Sequoia.


Several factors help explain the findings by Seneca Evercore. One of the main reasons is that the last major IPO window in Brazil occurred between 2020 and 2021, during a period of low interest rates that boosted the capital markets.


Of the total companies that went public in the last five years, 68 of them (92%) listed their shares between 2020 and 2021.


The sectors that dominated IPOs during this time—retail (14 companies), technology (14), and construction (11)—benefited from lower interest rates. However, these same sectors faced significant challenges between 2022 and 2023, which was reflected in their share prices. Notably, the last two years saw a complete IPO drought, with no new companies going public.


“We must remember that it wasn’t just the companies that went public, but the entire stock market was operating under a different interest rate scenario in 2020 and 2021. Interest rates in Brazil were at 2%, and in the U.S., they were zero. When interest rates rise, stock prices drop across the board,” says Felipe Thut, CEO of Bradesco BBI.


Thut emphasizes the need to evaluate individual cases to understand why a company's stock price is lower today than at the time of its IPO. However, he notes the atypical market conditions during this period, heavily influenced by the economic impacts of the COVID-19 pandemic.


At the start of the pandemic, isolation measures disrupted economic activity, and inflation fell, leading to low interest rates. This encouraged investors to take on more risk, moving significant portions of their investments from fixed-income assets to riskier securities.

As the global economy’s recovery was uneven, demand increased while supply chains struggled, creating bottlenecks.


Central banks responded to historic inflation in many countries, which directly impacted global capital markets. Markets are now regaining momentum as interest rates begin to decline or are expected to in several economies.


“It took us a long time to surpass the stock market peak from mid-2021. That only happened in December 2023. And if you consider accumulated interest rates or adjust for inflation, we still haven’t reached the mid-2021 level,” Thut explains.


Performance Breakdown

The Seneca Evercore study categorized companies that launched IPOs since 2018 into four groups based on revenue and net income growth. Groups 1 and 2 included 18 companies, while Groups 3 and 4 included 19 companies.


Companies in Group 1, which achieved the best financial performance, also saw their stock prices outperform IPO levels.


This group was dominated by companies in the commodities and basic materials sectors, which benefited from rising global commodity prices.


In contrast, Group 4—comprised of companies with the worst revenue and net income performance—was dominated by technology, retail, and construction firms.

Daniel Wainstein, senior partner at Seneca Evercore, points out that beyond macroeconomic challenges, many companies in Brazil were simply not ready to go public.

For example, Seneca’s study revealed that only 13 of the 74 companies that launched IPOs since 2018 outperformed the Ibovespa. “So, you can’t just blame the market because they underperformed the market,” he says.


Wainstein expects a new IPO window to open in the second half of this year but advises companies to assess whether they are ready to go public.


“This is the time when companies are starting to prepare their prospectuses with the hope of launching IPOs. I urge entrepreneurs to reflect on these numbers and ask: Am I one of those 16 companies [that saw stock prices rise post-IPO]?”


Wainstein adds that many companies rush to take advantage of IPO opportunities in Brazil’s periodic capital market windows, often before they are mature enough to list. This ultimately harms both the entrepreneurs and their shareholders.


Alternatives to IPOs

For companies not yet ready to go public, Wainstein outlines three main alternatives for raising capital.


First, they can grow using their own cash flow. Second, they can partner with a private equity fund, which provides capital and remains invested in the company, unlike speculative shareholders.


“It’s the classic #we'retogether. If the company does well, they do well. If it struggles, they’re in it with you,” he says.


A third option is to take on credit through debt instruments, such as convertible debt, where loans can potentially be converted into shares. “There are many alternatives for financing beyond short-term or traditional bank loans, which are not the best options for companies seeking to invest,” Wainstein explains.


According to another Seneca survey, the share of bank loans in corporate credit has dropped from 70% in 2018 to 56% today. This decline has been accompanied by significant growth in capital market debt instruments like debentures and securitizations.

For instance, these alternatives accounted for 30% of the private corporate credit market in 2018 and grew to 45% in 2023.


“This reinforces the idea of a more diversified market with more options for entrepreneurs,” says Wainstein.


Contributed by Marcelo Azevedo


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