When Arm makes its public debut on Thursday, attention won’t just be on the U.K.-based chipmaker. The lead underwriter on the deal is Goldman Sachs
,
will also be in the spotlight.
A successful initial public offering for Arm could revitalize the previously weak IPO market and lead to more business for Goldman (ticker: GS) and its investment banking rivals. However, a misstep – whether due to market conditions or Goldman’s efforts – will continue to dampen trading debut sentiment and could be another blemish for embattled Goldman boss David Solomon.
Arm is looking to raise around $5 billion at a valuation of $54.5 billion, the largest technology IPO since Uber Technologies (UBER) debuted in 2019. Arm is expected to include delivery company Instacart, sandal maker Birkenstock and marketing platform Klaviyo are making public debuts, all with Goldman as the primary underwriter.
The success of these companies is measured by a smooth opening transaction and stock prices that remain above IPO prices in the weeks following the IPO. Achieving that would be a tour de force for Goldman and Solomon, allowing the bank to demonstrate its prowess in taking companies public after making loss-making missteps while trying to build a consumer finance business.
A slow IPO market isn’t Goldman’s fault. Rapidly rising interest rates and geopolitical concerns are responsible for this. But the downturn came at an inopportune time as the bank struggled with reports of discontent among its partners and questions about Solomon’s leadership. While this doesn’t affect the bank’s ranking in the IPO rankings, the bank needs a win to silence critics.
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“These IPOs are certainly in the spotlight,” RBC Capital Markets analyst Gerard Cassidy told Barron’s. “We want these to be priced right. If they fall below the syndicate price, it will spoil the pipeline.”
Goldman declined to comment.
Solomon seemed aware of the risks when he spoke about Arm and other IPOs in his pipeline at a Barclay’s conference this week.
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“It’s been quite a while since I could tell you that we have a handful of very significant IPOs in the market. That’s an improvement,” Solomon said. “I am convinced that if these are going well and you feel like they are making good progress at the moment, there will be a kind of virtuous circle that will result in more of the pent-up backlog being brought to market.”
To put it simply, this backlog means more sales. Goldman’s equity underwriting revenue rose 41% in the first half of 2023, but this increase is below low levels. Between 2021 and 2022, equity offering proceeds fell 83% to $848 million.
According to data from Renaissance Capital, there have been 72 IPOs so far this year, which is more than the 71 IPOs in all of 2022, but significantly fewer than the 397 IPOs in 2021, when markets were red-hot. In the five years between 2016 and 2020, the average number of IPOs was 168. This means that
Renaissance IPO exchange traded fund
(IPO) is up 35% this year but has fallen 51% over the past two years as investors were disappointed by new issues.
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“If investors make money on Arm, they are certainly more likely to put money into the next deal,” said Matt Kennedy, senior IPO market strategist at Renaissance Capital.
And that means more money for Goldman.
Write to Carleton English at [email protected]
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