IPO Market Awakens From Long Slumber

IPO investors have moved from a fear of losing money to a fear of missing out. 

Last week, Oddity Tech, the parent of direct-to-consumer beauty brand Il Makiage, staged a wildly successful stock-market debut, signaling that after an 18-month quiet period, the IPO market could be on the cusp of a revival.

In the past several weeks, the major barriers to a resurgence in initial public offerings have lifted. U.S. stocks are climbing toward new 52-week highs, volatility is down, inflation has eased and, perhaps most important, investors are making speculative bets again.

What will determine whether the IPO market returns to a roar is now more about whether stewards of private companies want to make the transition to public ownership.

“It’s supply crimping the IPO market, not demand,” said Daniel Burton-Morgan, head of Americas Equity Capital Markets Syndicate at Bank of America. “Does that mean post Labor Day we see a more normal IPO market? Maybe. Or it could take another quarter. But at this juncture, investor demand is not the issue.”

The slow period allowed many startups to do what two years ago seemed unthinkable: cut costs and pivot toward a goal of quickly reaching profitability. That means the pipeline of companies eyeing U.S. offerings is stronger than before the slowdown, bankers say.

The fall looks to be busy. The biggest offering of the year is set for September. British chip designer Arm is looking to list shares as early as mid-September, according to multiple people close to the deal. Arm will likely target a valuation of more than $50 billion. 

And there are more major listings in the offing. 

Marketing-automation platform Klaviyo, which is profitable and was valued at $9.5 billion in a private funding round in 2021, is preparing for a debut as early as September. Car-sharing marketplace Turo has been talking to investors about a debut in the coming months. Birkenstock is also looking to go public as soon as this fall in an IPO that could value the German shoe manufacturer at $7 billion or more. Instacart, which hired bankers for an IPO more than two years ago, is also hoping for a big late-2023 debut.

Bankers, lawyers and investors say it is unlikely this year will return to the levels reached in 2020 and 2021. 

During those years, unprofitable startups rushed to list their stocks in the U.S. as investors awarded them with high valuations. The appeal of IPOs is that while the companies might not make money at the time of their offerings, they might one day deliver sizable profits. As interest rates hovered near zero in 2020 and 2021, it made sense for investors to pay a premium for the potential of big future returns.

In late 2021, however, central banks signaled they would raise interest rates. Companies that promised big growth but had small or no current profits became less attractive and the IPO market slowed to a near halt.

Companies going public in the U.S. through traditional IPOs raised just $9.1 billion in the first half of the year, according to Dealogic—far below the $27 billion average for the same period over the past decade.

Plenty of private companies are still holding back from public markets. Stripe raised more than $6.5 billion privately earlier this year, and the fintech company is no longer aiming for a 2023 stock-market debut. Reddit, also long-discussed as a 2023 IPO candidate, isn’t planning on listing its shares soon. Some companies, including digital-advertising firm Aleph Group, have withdrawn their IPO filings with the Securities and Exchange Commission, worried about how the economy will fare in the balance of the year.

Still, there are signs that animal spirits are returning to the IPO market. Investors who attended Oddity’s roadshow earlier this month were surprised by the fervent tone that felt a lot like the boom times, one fund manager said.

Bankers underwriting the deal told investors there was off-the-charts demand for the offering, prompting them to raise the price range for the IPO. By the end of the roadshow, investors had placed orders for $10 billion of shares of Oddity, according to a person familiar with the matter; they were competing for the less than $500 million in shares that would ultimately be sold.

Write to Corrie Driebusch at [email protected]