US IPO Market’s Renewed Activity Enthuse Investors

When Instacart, the leading grocery technology company in the US, sold 22 million shares at $30 each in an initial public offering on Monday raising $423 million in the process, it was by no means a fluke and reflected the renewed activity in the US IPO market.

The Instacart’s offering, which values the grocery delivery firm, at little over $10 billion, is the second high-profile IPO within a week as the British chipmaker Arm also launched its IPO on the Nasdaq stock exchange on September 14.

Besides these companies, Boston-based Klaviyo Inc, a marketing automation company, secured a valuation of $9.2 billion in its initial public offering (IPO) on September 19, after pricing the share sale above its indicated range, Reuters said in a report quoting people familiar with the matter.

Klaviyo priced 19.2 million shares at $30 apiece, and the company revised its indicated IPO price range from $25-$27 per share to $27-$29 per share on Monday, the report said. Klaviyo is planning to raise up to $550 million in its IPO.

Ernst & Young (EY), which has analysed data released by the financial markets’ platform Dealogic, said that the IPO activity already picked up slightly in the first half of the year, as companies raised $10.1 billion in 63 IPOs in the US, an increase of 115% and 24% respectively, compared with $4.7 billion in 51 IPOs over the comparable 2022 period.

The proceeds raised was largely driven by a single $4.4 billion IPO in May, by the US-based consumer health company Kenvue, a spinoff from Johnson & Johnson, which was listed on New York Stock Exchange in May this year, accounting for over 40% of total US IPO proceeds YTD. The offering, which was the largest US IPO since November 2021, traded up 22.3% on its first day of trading.

According to EY, considering the market challenges of recent years, including stubborn inflation, geopolitical instability and rising interest rates, corporates have been actively exploring ways to unlock value and drive shareholder returns. Two of the larger US IPOs in Q2 of 2023 were carve-outs from corporates, and a number of similar spinoff transactions are in the pipeline.

Market Outlook in H1-2023

Despite the slowdown in the US IPO market in recent quarters, many of the headwinds that contributed to the dearth of activity began to subside in the first six months of this year. Equities have rebounded from the second half of 2022 lows, inflation may have peaked, interest rate increases could be nearing an end, and volatility has subsided to pre-COVID lows.

The EY report also felt that still, it may take the IPO market longer to recover than many market participants forecasted at the beginning of the year. The unforeseen banking crisis in H1 of 2023 drove uncertainty in the markets, but contagion fears seem to have faded, yielding optimism for more activity in the back half of 2023 and into 2024, given the more constructive market backdrop.

“Despite the continued slow pace of IPOs, recent improvements in market sentiment and the uptick in follow-on activity could be a harbinger of brighter days in the US IPO market later this year or next year,” Mark Schwartz, EY Americas IPO and SPAC Advisory Leader, said.