Topline
A quartet of upcoming, high-profile initial public offerings have sparked hope for the sputtering IPO market, but experts say it’s not necessarily a sign of the flood gates opening once again.
Key Facts
Over the last month, four companies have announced their plans to go public via New York exchanges at multibillion-dollar potential valuations: British Chip designer Arm, German sandal hawker Birkenstock, mobile grocery firm Instacart and automated marketer Klaviyo.
The listings will undoubtedly jolt a domestic IPO market coming off of by far its weakest year in over a decade, and Arm’s roughly $55 billion projected valuation will make it the largest company to go public since November 2021.
But despite the headlines, this is not “really the starting point for a robust IPO market,” according to David Erickson, a professor at the University of Pennsylvania’s Wharton School of Business who previously headed Barclays and Lehman Brothers’ equity capital markets teams.
Though it’s “always good to have IPOs coming versus not coming,” it won’t be until 2024 at the earliest for the IPO “pipeline to open,” Erickson told Forbes, pointing specifically to the non-traditional timing of Arm and Instacart given Arm’s previous status as a public company and Instacart’s depressed valuation.
Crucial Quote
“While you might see a crack in the IPO window in 2023, our belief is it will be 2024, 2025 until it really fully reopens,” Raj Ganguly, co-CEO of the venture capital firm B Capital, told CNBC on Monday.
Key Background
During the first six months of 2023, there were 63 U.S. IPOs which raised $10 billion, massive increases from the same period last year but still on pace to far underwhelm the record $150 billion raised across nearly 400 IPOs in 2021, according to EY. Goldman Sachs’ IPO Issuance Barometer, which tracks IPO activity and is normalized to 100, was 91 last month, up from a meager 7 last September but down from a record 201 in June 2021. The IPO market’s stalling came as macroeconomic conditions deteriorated due in part to growth-stifling higher interest rates and prospects watched in horror as 2021’s largest IPOs saw their share prices collapse. Coinbase, Rivian, Roblox stocks are all down more than 60% since going public in 2021.
What To Watch For
Arm, which will begin trading on the Nasdaq on Thursday, expects to raise roughly $4.5 billion, the largest go-public deal since electric vehicle maker Rivian in 2021. Instacart and Klaviyo will debut later this month at respective high-end valuations of $9.3 billion and $8.4 billion, while Birkenstock will target an $8 billion valuation, according to Bloomberg.
Tangent
Perhaps the most glaring difference between the latest IPO restart and the 2021 boom is companies opting for more-traditional IPOs rather than via special-purpose acquisition companies (SPACs), the blank-check firms behind many of the early pandemic era deals. The proliferation of SPACs led to offerings for “early stage companies that were nowhere near the metrics” to justify going public, according to Erickson.
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