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Professors discuss withdrawal of Chobani IPO, market uncertainty

Chobani, Inc. announced it was withdrawing its previously delayed initial public offering (IPO) at beginning of September. The move signals market uncertainty, Notre Dame professors told The Observer.

The Greek-style yogurt maker had begun laying the groundwork for a stock launch all the way back in February of 2021. Two attempts to go forward with the IPO were postponed in the fall of 2021 and January of this year. Chobani’s ultimate decision to back away from a public listing can help illustrate the current health of the global market.

Last year was a record year for IPO activity in the United States. Over 1,000 IPO transactions took place in 2021 with gross proceeds rising above 300 billion U.S. dollars, assistant chair and teaching professor of finance Jason Reed pointed out.

Reed looks at the spike in IPOs through the lens of a researcher who focuses on the integration of behavioral trends and macroeconomic movements.

“People during COVID were searching for good yields and were willing to take on riskier bets because they thought coming out of COVID, the general health of the global economy was going to rise,” Reed said.

Asked to step into the shoes of an institutional investor, Reed said he would take more risks.

“I’m going to take more risks thinking that, globally, we are going to come out of this together,” Reed stated. “I think that is why you see appetite than from investors for equities, especially equities that are coming from private to the public.”

Paul Schultz, another finance professor, studies periods of extraordinary technological innovations, including the dot-com bubble, when many companies decided to go public.

“IPOs usually are more common when there is less uncertainty in the market,” Schultz said.

Schultz noted that market skepticism underscores the connection between the number of stock listings and the economy.

“[IPOs] are more common after the stock market has been has done well,” he added.

The narrative regarding the amount of stock listings has flipped unilaterally in 2022. “The total number of IPOs in quarter one of 2022 was 57, whereas in quarter two 2022, it is 35,” Reed said.

Schultz points to uncertainty as the explanation for the IPO turnaround.

“At this point the market has done very poorly this year. There is a tremendous amount of uncertainty about the economy. Many people think we’re in a recession or going into recession and there is a lot of uncertainty about hiring and so forth,” Schultz said.

Reed also showed concern about the volatility of current market conditions.

“All the volatility that we are seeing is because of things like supply chain disruptions, the Ukraine invasion, oil prices going up. The general global consensus is the global economy is going to become fairly depressed,” Reed said.

“If you track some of the volatility index measurements, you’ll notice the volatility is incredible right now,” he said.

“If there is uncertainty like this, it probably means you’re not going to get a good price for the IPO,” Schultz said. This explains why Chobani decided now to finally withdraw its IPO launch now.

“Whenever a company goes public, there is never clear how much they are going to be able to sell their stock for until the IPO actually takes place,” Schultz said. “The more uncertainty there is, usually the more they end up underpricing your IPO just to make sure that it gets sold. If you are unable to sell your IPO, it is disastrous for the company.”

Chobani will miss out on raising money in stock sales and the increased borrowing power that comes from additional equity capital share. Additionally, a withdrawn IPO can have a ripple effect on that extends much further than the any given company’s stakeholders.

“In terms of how the lack of going public hurts investors, it means fewer stocks out there,” Schultz said. “It is always better I think for investors to have more choices, more opportunities for investment.”

Reed explained where the capital turns to instead if companies are no longer willing to launch a fresh stock listing.

“There is a flight from equities back into treasuries and bonds, something that has like stable yields,” Reed said. Investors want to lock in yields in case there is a huge global downturn.

“If there’s no one in the market for equities, or if the appetite for equities is not there, then I do not want to go and try and sell my brand-new company in that market,” he said.

Reed could not predict how long the economy will continue to be depressed, pointing to inflation and interest rates as other important indicators of macroeconomic strength.

“No one really understands knows the path of what’s going forward, but the consensus seems to be the general concern for overall global health is preventing some of these IPOs from developing,” Reed said.

He foresees trouble for “at least the next six months.” Still, all hope is for Greek yogurt lovers is not lost.

Though Chobani has backed out of their IPO now, “if they withdraw an IPO usually takes a few years before they try it again,” Schultz said.

You can contact Peter Breen at pbreen2@nd.edu