Global Courant
The two main issues for an IPO revival are 1) a strong market and 2) stable interest rates. With the S&P 500 set to fall for a fourth consecutive day on Thursday, investors are looking to see if the recent rally in the S&P 500 is sustainable. Meanwhile, short-term government bond yields have been trading at the high end of their recent range and are being closely watched. Three companies announced they would go public next week on the NYSE, all in the substantial $300 million range: Fidelis Insurance, a global provider of specialty insurance and real estate reinsurance, plans to list 17 million shares of stock. at $16 to $19. According to Renaissance Capital, this would raise $298 million by the midway point, with a fully diluted market value of $2.1 billion. Kodiak Gas Services, which provides natural gas compression services in the US, plans to offer 16 million shares at a price range of $19 to $22. Halfway through the proposed range, that would raise $328 million with a market value of $1.5 billion . Savers Value Village, the largest for-profit thrift store operator in the US and Canada, plans to offer 18.8 million shares for $15-$17. Midway through, this would raise $301 million, with a fully diluted market value of $2 .8 billion. While all three are in niches (reinsurance, natural gas, and retail), the fact that they’re all in the $300 million range and all coming in the same week is significant. It means nearly $1 billion will be raised by IPOs next week. That hasn’t happened in a long time, Renaissance Capital’s Matt Kennedy told me. “In the last year and a half, there has only been one week where more than $100 million has been raised by three companies,” he told me. “The IPO market is definitely opening up,” he said. Goldman Sachs’ David Kostin also notes an improving IPO market. In a note to clients on June 13, just ahead of Cava’s IPO, Kostin noted that an IPO barometer Goldman uses to measure IPO sentiment had improved dramatically, spurred by stabilization in stock prices, an improvement in confidence from the CEO, a spike in front-end rates and the expected end of the Fed’s rate hike cycle. Where are the unicorns? The big problem now is, what about the bigger players that have been potential IPO candidates for a long time, such as Fogo de Chao, Panera Bread, Reddit, Instacart, Stripe, Impossible Foods, Fanatics, StubHub, and Klarna? Chip designer ARM is already in talks with customers to be early-stage investors in its IPO, but investors say many so-called unicorns are still unsure if now is the right time to get in. “Volatility has come out of the market, so those companies that are in our pipeline, some of which have been in our pipeline for more than 18 months if not longer, are starting to have conversations with us,” said NYSE President Lynn Martin. week in an interview on CNBC. That is a hopeful sign, as is Cava’s IPO. “What Cava showed me is that there’s venture capital, there’s investors if the stats are right,” said Santosh Rao, chief research officer at Manhattan Venture Partners. Still, those larger companies need strong signals that the coast is clear. “There are still some dark clouds,” Rao told me. “We don’t know if there will be a recession, how many rate hikes will come. They need a clearer sign.” “I expect IPO activity/filings to pick up in the fourth quarter,” he told me. “Until then, I expect small, niche, non-tech companies like these four to launch their IPOs similar to previous years when conditions were similar.” Next Day IPO Curse Fast food restaurant chain Cava went public with a bang last week, trading at $22, opening at $42 and closing at $43.51 on its first day. The good news: Strong initial pricing sent a positive signal to other potential IPO candidates. The bad news: The stock fell to around $38 the day after the IPO and remained within that range. Call it the “first-day IPO curse,” the tendency for IPOs to go up the first day and fall the next day, and often months after that. IPOs: First day curse (since 2018) Average first day pop: +25% Post-first day: -26% Source: Renaissance Capital This happens because initial excitement about the IPO drives prices higher on day one, in a classic example of herd behavior. It’s a well-studied phenomenon and the source of great frustration among retail investors, most of whom buy on that first day. But with Cava still trading well above its $22 initial price, those large institutional funds that received initial allocations are sitting on very large profits for their clients.
