Recent Deals Fail to Spark Lackluster IPO Market

Shaky receptions to a trio of initial public offerings last week show that the new-issue market is still in recovery mode.

Thrift-store operator Savers Value Village priced its IPO above expectations, and its stock rose 27% on its first day of trading Thursday. Two other offerings didn’t go as well, with reinsurer Fidelis Insurance Holdings and Kodiak Gas Services both pricing their offerings below their targeted ranges and experiencing drops on their first day of trading.

It’s not the blockbuster showing some had hoped for coming off of the soaring success of Mediterranean restaurant chain Cava Group in mid-June.

“We’re in an IPO market that’s not fully open yet. We’re in rebuilding mode,” said Douglas Adams, global co-head of equity capital markets at Citigroup. “Rebuilding modes generally aren’t a straight line.”

There are reasons to be upbeat. The tech-heavy Nasdaq Composite stock index, which often is viewed as a proxy for IPOs, is up roughly 30% so far this year. Stock-market volatility is down. In one of the hottest stock-market debuts in recent memory, Cava’s shares nearly doubled on its first day of trading, with the performance reminding many bankers and advisers of the boom days of 2020 and 2021. 

In the next big test of the health of the market, beauty-and-technology company Oddity is planning to launch its IPO as early as July, according to people familiar with the offering. British chip designer Arm is aiming for a September mega debut. Grocery-delivery company Instacart and marketing-automation platform Klaviyo are waiting in the wings, too.

Yet the picture is still murky.

Even with a recent burst of offerings, 2023 remains a slow year for IPOs, as increases in inflation and interest rates weigh on demand for new shares. Traditional IPOs in the U.S., which don’t include special-purpose acquisition companies, had raised roughly $9 billion through Friday. That exceeds last year, but still pales in comparison with the $87 billion and $24 billion raised at the same point in 2021 and 2020, respectively.

Despite broader stock indexes’ gains, shares of companies that went public in recent years are still struggling, casting a shadow on the IPO market. Class of 2020 IPOs are down an average of 34% from their listing prices, according to Dealogic. The class of 2021 has fallen 46%, while last year’s are off 49%. Stock-market gains this year have been led by a handful of big companies.

There’s also the overhang of uncertainty in business spending and the direction of the overall economy, executives, bankers and others say. It’s hard to forecast revenue in the coming months or year, and the last thing newly public companies want to do is miss their first public earnings results. 

“There’s plenty of money out there, plenty of companies that can go, but you only get one chance to do it right,” said David DiPietro, head of private equity at T. Rowe Price. 

Write to Corrie Driebusch at [email protected]