The IPO parade of the early pandemic years crashed to earth in 2022, but there are hints of a possible recovery in 2023, despite much continued caution.
Last year, “the US IPO market ground to a halt,” according to Renaissance Capital, with just $7.7 billion in revenue, a whopping 95 percent down from 2021 and a record low since the company started recording it 31 years ago of data on companies going public.
The dramatic drop came as financial conditions tightened following rate hikes by the US Federal Reserve and a stock market collapse.
While worries about the economy haven’t gone away, the kind of initial public offering (IPO) that had eluded Wall Street for months saw two notable deals last week.
Nextracker, which provides tracker and software technology for the solar panel industry, raised $638 million through a Nasdaq share offering, exceeding its original target by almost 20 percent.
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In the same week, laser sensor maker Hesai raised $190 million in the largest IPO by a Chinese company in 18 months.
“It’s still well below historical norms, but there’s definitely a rebound,” said Avery Spear, senior data analyst at Renaissance Capital. “Last year, people didn’t want to take any risks because IPOs were inherently risky.”
According to a Nasdaq spokesman, around 293 companies are currently registered for IPO, up 39 percent from the same time last year.
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Additionally, several other well-known companies are also considering bids, namely payment processing platform Stripe, which was recently valued at $63 billion; sports merchandise giant Fanatics ($31 billion); and grocery delivery service Instacart ($10 billion).
“There’s a lot of capital that can (and) wants to be deployed,” said Mark Roberts, Blueshirt Group’s head of capital markets.
“But there will be more due diligence, and the bar is set higher.”
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Roberts believes it will make a leap into the IPO space from one of the big companies considering an IPO to revitalize the market.
Renewable energy companies are believed to be particularly well-positioned for deals following passage of the US Inflation Reduction Act in Congress, with nearly $400 billion in tax incentives, grants and loans designed to accelerate the transition away from fossil fuels.
Nextracker is an example of this trend, as is Israeli company Enlight Renewable Energy, which was already listed on the Tel Aviv Stock Exchange but raised $252 million on Wall Street through a share offering last week.
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“Fintech” companies like Stripe – which are trying to revolutionize the financial sector with a range of online services – are also attracting strong interest from investors, according to Roberts.
Seen last year as an IPO kryptonite to be avoided at all costs, tech companies have attracted more attention of late, albeit without the prospect of the lofty valuations of a few years ago.
“The sky-high valuation multiples that we saw in 2021 are long gone,” Spear said. “The era of easy money is in the rearview mirror at this point.”
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Stripe is something of a flagship in this regard, recently offering a valuation of just $55 billion, making it $40 billion in savings since its 2021 peak.
Interest in an IPO coupled with the latest and greatest artificial intelligence has been particularly strong following the recent launch of ChatGPT’s zippy chatbot.
However, market watchers are still waiting for a star to emerge.
“As far as I know, there isn’t a truly scaled AI company that’s ready to go,” Roberts said.
Despite recent signs of life, the market won’t really get going until investors are convinced the Fed is done with its current cycle of rate hikes, Jeffrey Solomon, chairman and CEO of Cowen Finance, recently warned.
Additionally, “market conditions can really change on the fly,” Renaissance’s Spear said. “If anything changes in Fed rates, if we see more drastic changes” in the economy, “then that could close the IPO window again.”
The prevailing view, Roberts said, suggests that the second half of 2023 will be more constructive in terms of issuance.
But “there is a minority view that suggests this is a situation where the window could open for a month. So if you’re a company that wants to go, maybe April or May you should be ready to go.”
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