The US market for initial public offerings looks like it’s finally coming back to life after 18 months of deathly quiet.
(Bloomberg) — The US market for initial public offerings looks like it’s finally coming back to life after 18 months of deathly quiet.
Shares of Cava Group Inc. nearly doubled in its trading debut on June 15 after the fast-casual restaurant chain’s breakthrough IPO was priced well above the initial range set by underwriters. While the stock price has slipped a bit from its early surge, it still remains up about 84%.
Now, a trio of companies are preparing to follow Cava’s lead and tap the public markets this week. All told, about $1.5 billion is expected to be raised in IPOs on US exchanges in June, marking the first consecutive months with more than $1 billion sold since last fall, according to data compiled by Bloomberg.
“Everyone was watching Cava very closely, so that’s going to be a good starting point for the opening up of the IPO market for new companies,” said Greg Martin, co-founder of Rainmaker Securities, which facilitates secondary transactions for private companies. “There are a lot of great companies that are private that have filed. The bar will still be high, but there’s clearly a lot of pent-up demand.”
Cava’s success will likely be a signal to peers, including Panera Bread Co. and Fogo de Chao Inc., that the time to go public is approaching, according to industry watchers. Other companies may become more proactive in pursuing listings later this year or in 2024.
If Kodiak Gas Services Inc., Savers Value Village Inc., and Fidelis Insurance Holdings Ltd. price this week as planned — they’re all set to be among the year’s 10 largest IPOs on US exchanges at their respective midpoints — the pool of industries tapping public investors will broaden. That would mark a change for a market that has been dominated by corporate carveouts and penny stocks this year.
Johnson & Johnson’s consumer health products firm Kenvue Inc., which makes Tylenol and Listerine, brought in $4.4 billion, accounting for $4 of every $10 raised in IPOs on US exchanges so far this year, data compiled by Bloomberg show. And solar power tracker NEXTracker Inc., a spinoff from Flex Ltd., tapped public investors for $734 million.
“I’m not so sure the summer is going to be very busy, but I do think there are people thinking about the post-Labor Day window seriously,” Zach Dombrowski, head of consumer ECM at William Blair, said in an interview. “Growth investors are looking for new ideas to put capital behind, and consumer discretionary — particularly restaurants — fit that bill because most buy-side generalists can analyze them.”
Fundamentals are supporting the sudden expansion of the IPO market. The S&P 500 Index is firmly in a bull market and closed at a roughly 14-month high earlier this month, while the VIX Index, which measures volatility, has held below 20 since late March — a key level for bankers seeking a less volatile equity market for pricing stock offerings. Wall Street is also increasingly betting that the Federal Reserve will end its tightening cycle sooner rather than later.
The case for more companies to go public has shown up in Goldman Sachs’ IPO issuance barometer, which indicates the macroeconomic environment is conducive to new listings. That’s on top of the growing backlog of companies expected to tap public markets, one that bankers say stands out from previous times when the window for IPOs was shut for more than a year. British chip designer Arm Ltd. is expected to be the year’s biggest IPO, while other household names such as Instacart Inc. are among those expected to go public soon.
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Still, just $10.6 billion has been raised in IPOs through June 26, a decline from last year and a 95% below 2021’s boom, according to data compiled by Bloomberg. The key will be the second half of the year, when bankers and investors think there could be a stronger appetite for new issues.
“The market is going to continue to provide windows and opportunities for quality companies to get out,” said Seth Rubin, head of equity capital markets at Stifel. “I don’t think any one deal or one data point is going to open the floodgates, but a lot of issuers are taking a much more constructive and proactive view towards the public market whether that’s for later this year or 2024.”
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