Stock sale frenzy foretells US IPO market comeback
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[June 21, 2023] By
Echo Wang and Lance Tupper
NEW YORK (Reuters) - A flurry of stock sales by companies points to a
likely wave of initial public offerings launching come September,
potentially marking the end of a weak market for debuts that has
persisted for a year and a half.
Publicly listed companies and their backers, such as private equity
firms, have sold stock worth more than $28 billion in the United States
since the end of April through follow-on and secondary sales, according
to data provider LSEG Deals Intelligence. That compares with $7.3
billion over the corresponding period a year ago.
This spike bodes well for the IPO market, bankers say, because both new
listings and secondary stock sales rely on strong demand from equity
investors.
"Historically, follow-on activity of this magnitude should lead to
animal spirits in the IPO market," said Daniel Burton-Morgan, head of
Americas syndicate for equity capital markets at Bank of America Corp.
The IPO market has been in the doldrums since the start of 2022, when
Russia's invasion of Ukraine and a spike in inflation fueled a bout of
market volatility as investors fretted over U.S. interest rates hikes.
IPOs excluding special purpose acquisition vehicles raised $154 billion
globally in 2022, a 65% decrease from a record breaking 2021, according
to data provider Dealogic.
With investors now predicting the end to Federal Reserve rate hikes
later this year, volatility has subsided. The VIX, an index that
measures volatility and is known as Wall Street's "fear gauge", has
consistently been below 20 -- the threshold above which market jitters
are seen as too hostile for IPOs -- for much of the second quarter. It
is now at one of its lowest levels since February 2020.
Goldman Sachs Group Inc's IPO Issuance Barometer, which measures how
conducive the macroeconomic environment is for IPOs, is now at its
highest level since March 2022.
"The stabilization in equity prices has been the primary driver of the
rebound in the IPO Issuance Barometer," Goldman Sachs analysts wrote in
a note to clients earlier this month.
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Signage for TXO Energy Partners is seen
at the New York Stock Exchange (NYSE) to celebrate their IPO in New
York City, U.S., January 27, 2023. REUTERS/Andrew Kelly
The week of June 5 saw 19 follow-on and secondary stock sales in the
United States, totaling proceeds of $6.6 billion, one of the highest
weekly tallies since the end of 2021.
The tally included Intel Corp selling $1.6 billion worth of stock in
former self-driving technology unit Mobileye Global, and General
Electric's $2 billion sell-down of is stake in GE Healthcare
Technologies.
IPO HOPEFULS
Major companies are waiting in the wings to launch their market
debut come September, when the IPO window traditionally opens after
a summer lull.
These include SoftBank Group Corp-owned chipmaker Arm Holdings and
data and marketing automation firm Klaviyo. The exact timing will be
determined by market conditions and is subject to change.
One company that took the IPO plunge last week reaped the benefits.
Shares of Mediterranean restaurant chain Cava Group have at one
point doubled in value since its went public on Thursday at a $2.45
billion valuation. It priced its IPO above its expected range, which
it had previously revived upwards.
"(The Cava IPO) is potentially a significant signal for other
companies considering testing the market in both consumer and other
sectors," said Alex Wellins, co-founder and managing partner of
capital markets advisory firm Blueshirt Group.
"By all accounts for me that was a blockbuster success, and I think
that's going to give others some confidence," said Keith Townsend, a
capital markets attorney at law firm King & Spalding.
(Reporting by Echo Wang and Lance Tupper in New York; Editing by
Greg Roumeliotis and Sam Holmes)
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