Jun 10, 2023 - Economy

IPOs show signs of life

Illustration a diverse array of raised hands behind the Wall Street bull statue

Illustration: Sarah Grillo/Axios

That whisper you hear is the sound of air rushing in from the initial public offering window, which finally may have cracked this week because of moves by restaurant chain Cava and airline company Surf Air.

Why it matters: A market in turmoil and an uncertain economy have chilled IPOs for over a year, but there are no shortage of companies patiently waiting for an opening.

The big picture: So far this year, there have been 44 U.S. IPOs, raising $7.3 billion — on a clear track for 2023 to surpass last year's 71 IPOs that raised $7.7 billion, per Renaissance Capital data. Issuers are increasingly eager to tap the market, especially as bullish sentiment nudges Wall Street higher.

  • But that's a far cry from 2021's 397 listings that raised $142.4 billion. In that year's second quarter alone, 118 listings raised $40.7 billion.

State of play: After teasing a potentially imminent listing last month, fast-casual Mediterranean restaurant chain Cava submitted terms for its IPO on Monday. It is seeking to raise up to $274 million at a potential valuation of $2.1 billion.

  • The same day, flight subscription company Surf Air filed to go public via a direct listing. In November, its previous plans to merge with a special purpose acquisition company, at a $1.42 billion valuation, fell through.
  • This follows Johnson & Johnson's spinoff of its consumer business, Kenvue, a month ago. That raised $3.8 billion, hitting a market cap of $50 billion on its first day of trading.

What they’re saying: “Yes, these two are signs that companies are coming to terms with the fact that today's equity market is not the same as the 2020/2021 market,” Lise Buyer, co-founder of IPO adviser Class V Group, tells Axios via email.

  • “I continue to believe that for a number of reasons, including a rationalization/better understanding of current public equity valuations, we should begin to see the market window crack open and that activity is likely to pick up significantly by Q4,” she writes.
  • How these two listings pan out will be closely watched by other companies, Buyer added.

Yes, but: Not everyone is as optimistic. Christopher Dawe, managing partner of JPMorgan's growth equity unit, is pushing the real return of IPOs all the way out to early 2024.

  • “A lot of companies were rewarded [by investors] for growth over profitability” in the recent booming IPO market, but that dynamic has since flipped, he tells Axios.

Adding to his delay prediction for a full rebound in stock offerings: A lot of companies that raised money privately during that period haven’t yet grown their businesses into the inflated valuation multiples they got at the time, nor are their public market comps today commanding such valuations.

Moreover, biotech companies have already been hitting the public markets in recent months, including Acelyrin's $540 million IPO. Still, Buyer cautions that the sector’s listings have their own investment economics and dynamics, and shouldn’t be lumped in with those of tech and consumer companies.

The bottom line: Time will truly tell.

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