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Bankers and traders are hoping a flurry of listings in the US will herald a long-awaited rebound in IPOs after the longest downturn in decades.
Three companies began trading Thursday after each of them raised more than $100 million in IPOs. This marks the busiest day for IPOs since November 2021 and the latest in a series of encouraging recent milestones.
“We had the longest open window [for listings] since the Fed started tightening,” said David Ludwig, head of equity capital markets at Goldman Sachs. “While we don’t expect markets or issuance to improve in a straight line, I’m optimistic that volumes across all products in the second Half of the year will increase and we expect IPO volumes to normalize in 2024 if there are none.” . shocks.”
Volumes are well below the peak of 2021, when companies raked in $25 billion in a single month, but there has still been significant improvement in recent months from a low baseline. Excluding ring-fenced acquisition companies, IPOs in the US raised nearly $7 billion in the second quarter, more than double the total for each of the previous five quarters, according to Dealogic data.
The surge in IPO activity comes at a strong time for equity markets, which has benefited the performance of some new listings. Kenvue, the consumer division of Johnson & Johnson, has performed well since its IPO in May at nearly $4 billion, and restaurant chain Cava this month saw its biggest opening-day rise in share price in nearly two years.
“We believe this has cleared the deadlock and many companies that we speak to privately are now really trying to enter the market,” said Ari Rubenstein, managing director of trading firm GTS, which served as Cava’s designated market maker.
A sharp drop in volatility also helps. The S&P 500 has seen just 12 daily moves of more than 1 percent over the past three months, compared with 29 times in the first quarter, and the Vix index — an indicator of expectations for future market volatility — fell to its lowest level since the coronavirus outbreak Pandemic.
“As the Vix remains at subdued levels, the debt ceiling overhang has been lifted and the 2023 IPO class kicks off [outperforming the broader market]”Sentiment is definitely improving,” said Jim Cooney, head of US equity capital markets at Bank of America.
That’s a better picture than Europe, which despite some fresh signs of life is largely dwarfed by the US in the struggle for listings.
The recent surge in US IPOs follows a steadier upswing in the less risky ends of the equity markets. Repeat business — in which previously public companies or their shareholders sell large portions of stock — rose to $31 billion for the fifth straight quarter, up 158 percent year-over-year.
Despite the positive signs, however, executives are wary of overdoing it. Though bankers expect another window of opportunity after US Labor Day in September, most share Ludwig’s view that it will take until the end of this year or into 2024 for activity to normalize — and even that assumes that there is no recession, interest rate movements or similar The shock is now derailing the markets.
Pete Giacchi, who heads Citadel Securities’ floor trading team at the New York Stock Exchange, said he was “cautiously optimistic” about the prospects, but said the balance of power rests with investors rather than IPO candidates.
“Every time $1 billion is raised in a week, you can see the market is open. [but] “Companies may need to adopt a different valuation than they did a few years ago,” he said.
Investors also continue to avoid the type of fast-growing but heavy loss-making companies that dominated the stock market in 2020 and 2021.
“Clearly there has been a regime change in public markets’ takeover readiness,” said Greg Rice, a partner at Boston Consulting Group, who advises IPO candidates. “Three years ago they were willing to underwrite companies that wouldn’t make a profit for ten years. Now they are not.”
Even profitable corporations have to work hard to attract investors. Thrift chain store Savers Value Village raised $400 million, more than originally planned, but the two smaller deals, which also went on sale Thursday, were met with less positive reception.
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Fidelis Insurance Group and Kodiak Gas Services both sold below their original target ranges, falling on the first day of trading.
“It’s a choppy market,” said Mickey McKee, CEO of Kodiak. “Investors want a bigger discount [for a new listing] than traditional maybe, but it’s no disappointment – this is a starting point for a long game.”
Fidelis CEO Dan Burrows was similarly optimistic, noting that “the IPO market is generally tight.” .[but]We are very confident in our ability to outperform over time.”
For some, the fact that the deals went through at all is a sign of how far conditions have improved. Unlike low-risk spinoffs like Kenvue, all three of Thursday’s deals included payments to private equity backers, and Fidelis was an unusual corporate structure that Burrows said investors would have to become familiar with.
“It’s constructive to see difficult deals being made,” said BofA’s Cooney. “Even if some processes lack momentum, the ability to price these transactions is certainly a positive.”
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