• Smithfield Foods raises USD 522m, 21% below expectations
• Early engagement with investors becomes increasingly important

While the return of Donald Trump to the White House might have reawakened equity market animal spirits, IPO issuers have been met by investors with a more bearish countenance.

The IPO of Venture Global [NYSE:VG] serves as a cautionary tale. Initially targeting a staggering USD 110bn IPO valuation, investors expressed scepticism around its long-term ambitions. Consequently, the company lowered its targeted IPO range by 40%, with the offering ultimately pricing just above the midpoint of the revised range. Early this week, shares of the company fell 20%.

One source familiar with the process noted that it was evident investors would question the issuer’s valuation expectations. The original pricing range implied a 20x multiple, a premium to the closest comp, Cheniere [NYSE:LNG], which trades at around 15x. Despite management’s adamance that their valuation was justifiable, the likely result was clear as day.

“It turned into a ‘let the market tell them they are wrong’ scenario,” said the source.

Other overconfident issues, particularly in sectors that have benefitted from the post-election equity rally, are also likely facing a reality check when they come to market.

“Investors won’t buy at any price,” an ECM banker said.

Syndicate desks are increasingly mindful of crafting deals that align expectations and practical results, especially after a recent period where greater alignment between IPO issuers and investors led to new listings succeeding, which in turn helped drive market confidence.

“The investor feedback process is a well-trodden path. This is a wheel you cannot reinvent, let alone ignore,” another banker said.

This week, Smithfield Foods, the American pork producer owned by Hong Kong’s WH Group, raised USD 522m in its IPO, 21% smaller than its initial expectations. The company had filed to sell 34.8m shares at USD 23-USD 27. It ended up selling shares at USD 20, entailing a USD 7.9bn market value.

“What I keep repeating is that we need are a few moderately thought-out and constructively priced IPOs,” the same banker continued, cautioning that ignoring buyside concerns could have long-term consequences and risk ruining sentiment at a time when market conditions have ameliorated.

Source: Dealogic

Dry runs

In light of these challenges, advisers and issuers are placing a stronger emphasis on gauging investor sentiment early in the process. This shift has led to an uptick in the number of “test-the-waters” meetings with prospective investors.

“There has definitely been an uptick in the number of meetings companies take early on to ensure they are prepared,” said an adviser. “These meetings allow companies to refine their narratives and establish broader investor coverage. “The more meetings they take, the stronger their case by the time they execute a listing,” they added.

The trend of early engagement was already evident in 2024 and is expected to persist. A third ECM banker referred to a certain “velocity” of buyside engagement, with more companies proactively seeking investor input earlier in the process. Larger assets, in particular, are accelerating efforts to de-risk IPO execution by starting conversations well ahead of formal marketing.

“When the calendar gets busy, the buyside always prioritizes interesting opportunities with immediate timelines,” the same banker noted.

Companies targeting listings in 2026 or beyond may struggle to capture attention once the market becomes more crowded.  As a result, many are dedicating additional time to pre-marketing efforts and educating investors about their businesses earlier in the cycle. This way, when execution time comes around most of the education work will mostly be sorted.

These efforts not only help companies build relationships, but also enable them to fine-tune their strategies and manage mixed expectations.

“Sounding efforts before formal marketing continue to pick up, and more companies are spending time getting ahead of the curve to educate the marketplace and ensure their stories resonate,” said the third banker.