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Consumer and retail IPO market creaking open

illustration of the wall street bull peeking through an open window

Illustration: Tiffany Herring/Axios

The mounting number of successful IPOs by consumer-facing companies is making the case for an open IPO market.

Driving the news: Spinoff SharkNinja (though technically not an IPO) was the latest to make its U.S. debut in the space, after successful listings from Kenvue, Cava, Gen Restaurant Group, Savers Value Village and Oddity in the last four months.

Catch up fast: On its first day of trading, shares of SharkNinja jumped 40% to close at $42.31 per share. Shares were trading near $37 Wednesday morning.

Yes, but: Industry sources don't expect a fully open IPO market for companies with $10 billion-plus market caps until at least year-end or the start of 2024.

  • Aside from Kenvue, consumer-facing IPOs have been valued in the $500 million to $6 billion range so far this year.
  • "The IPO market is evolving," says Will Braeutigam, U.S. capital markets transactions leader at Deloitte. "Who it is open to now and who it will be open to in the future is different."
  • "Currently, the phased IPO window is beginning to open for emerging growth companies (EGCs)," he says.

What's happening: In the last month, the IPO market has been buoyed by consumer spending, a decline in inflation, positive market activity related to artificial intelligence, and a brief pause in rate hikes by the Federal Reserve (though that respite was short-lived), he tells Axios.

  • "That's all positive momentum," Braeutigam says.
  • Anecdotally, he says Deloitte has seen a significant uptick in the number of companies that have retained its services to actively prepare for an IPO.
  • This includes nearly 100 companies that have participated in Deloitte's IPO SelfAssess, a mechanism for companies to evaluate their readiness for an IPO offering.
  • "Expectations for active Q4 public listings are on the rise and companies have started to re-engage around the IPO process," he says.
  • The march toward the public markets for many is a "pure growth play," particularly when it comes to companies looking to expand via store openings or other growth levers, Baird consumer and retail managing director Matthew Tingler says.
  • Tingler cited Cava, alongside footwear retailer Birkenstock's planned IPO in September and Kim Kardashian's $4 billion apparel brand, Skims, (which is rumored to eventually publicly list) as examples.

Between the lines: A frothy software IPO — priced at above the 6x to 8x revenue multiple we've seen recently — may be the jumpstart the sector needs, Braeutigam says.

  • "That's how we would get to a fourth-quarter window," he says, noting the last significant software IPO was in 2021.

Be smart: The market needs to see several successful IPOs — and subsequent positive financial performance through initial quarterly results — before the IPO window can be declared fully open for consumer, Braeutigam says.

Zoom out: Though it seems the US may avoid a recession, the IPO market is highly dependent on a healthy economy.

  • A surprise spike in inflation, an overcorrection by the Federal Reserve, or the war in Ukraine taking a turn for the worse, could push the U.S. into a mild recession — and slam the IPO window shut.

The listing list grows

Status of select consumer retail IPOs
Data: Axios research; Table: Axios Visuals

Companies that have been sheepish about their IPO plans are starting to gain confidence again, waiting on the sidelines for the right time to pounce.

Why it matters: The positive trend for NYSE newcomers Savers Value Village and Cava is boosting market confidence.

Catch up quick: Savers, which debuted at $18 a share, is now trading at about $24 per share — while Cava debuted at $42 a share and is now trading near $58 a share.

Zoom in: Axios has compiled a list of companies that have stated interest in an IPO, hired bankers in prep for it, or withdrawn their filings.

  • But, for the latter camp, some, like Chobani, are hinting that they could revive those plans again this year (or sometime soon).

Yes, but: 2021 looms large

The 2021 IPO boom and bust is still casting a long shadow on public market outlooks for consumer-facing companies.

Why it matters: While market conditions are improving, companies and investors are increasingly focused on aligning financials and showing strong performance before listing, which could push IPO timelines out into mid-next year.

What's happening: A number of companies such as Kevin's Natural Foods and Mattress Firm kicked the tires on an IPO but chose a sale instead, an industry source tells Axios.

  • Note that Mattress Firm filed for an IPO in 2022, while Kevin's previously told Axios an IPO was among its options. (A Mattress Firm spokesperson tells Axios after an "extensive evaluation of opportunities" including filing for an IPO, the retailer decided on a sale.)
  • Near-term IPO-ready candidates could opt to wait until they have a full year of audited financial results to market off before pricing, the source says.
  • This points to a number of IPOs toward the end of Q2 next year, rather than this year or early Q1.
  • Given the inaccuracy of forecasts by companies that went public in 2021, there will be a "show-me story" this time around, the source says.

The intrigue: We could see a large retail tech player price between Labor Day and Thanksgiving, the source says. If successful, this could be a catalyst for more listings sooner.

  • Potential candidates include Instacart and Klaviyo, which are both described as ready to go, according to a capital markets source.

Between the lines: Many companies that went public in 2021 ended up with weak performance because they failed to accurately forecast their own results — and as a result lost the trust of investors, says Deloitte's Braeutigam.

  • Most companies eyeing listings are focused on obtaining consistent and reliable data about their own business, he says.
  • "If you miss your first quarter of earnings, you're gonna get penalized by the external market," PwC IPO service practice leader Mike Bellin tells Axios.
  • "So you better be sure that your visibility and your expectations are going to be met," Bellin says, with key metrics like store openings and profitability under the microscope.

Kevin's All Natural did not respond to a request for comment.

A secondary bite

Data: Refinitiv; Chart: Simran Parwani/Axios

Consumer companies pursuing IPOs may be floating fewer shares now, in hopes of fetching a larger return with a secondary offering later, industry experts tell Axios.

Why it matters: With valuations still depressed, this strategy can mitigate a potential price discount and offers companies a way to properly gauge valuation as the market normalizes.

Context: The median public listing VC exit valuation increased about 42% to $185.9 million in Q1 this year from the previous quarter, according to PitchBook.

  • But "the figure is only a fraction of the lofty valuations recorded in 2021," per PitchBook.

What they're saying: "In a tougher environment a company might keep its float low to help support early trading or to avoid diluting shareholders if it believes the IPO price undervalues the company," Matthew Kennedy, a senior IPO market strategist for Renaissance Capital, says.

  • This is particularly true as the IPO discount is higher in challenging markets, he adds.

Zoom in: The average float-to-market cap rate has trended lower over the past five years, according to Renaissance Capital.

  • In 2019, the average float was 18.2%; in 2020, 16.3%; in 2021, 14.4%, and last year, it was 10.4%.
  • The average float rate did tick up this year though, with companies offering an average float to a market cap of 14.4%.

The big picture: Secondaries are creeping back up now.

  • Through July 15, U.S.-listed companies have sold stock worth more than $51.8 billion through secondary, or follow-on, offerings, according to Refinitiv.
  • By comparison, companies sold around $58.8 billion worth of stock in secondary offerings for all of 2022.

What we're watching: Secondary offerings can also be a bellwether for the IPO market.

  • "Follow-ons have led the opening of the public financing market, which is typical coming out of a downturn, and the after-market performance of these offerings, along with the broader lift in the equity valuations," says Steve Maletzky, a managing director and the group head of capital markets for William Blair.
  • Several consumer companies issued follow-on offerings in the months before Cava's blockbuster IPO in June.
  • They include restaurant chain Portillo's, coconut water company Vita Coco, mattress maker Purple Innovation, sushi chain Kura Sushi, and Solo Brands.

Yes but: "The strategy of limiting IPO size and post-deal float to create scarcity and price tension is present in most market cycles," Maletzky says.

  • This is in part because companies are advised to be prudent on dilution when selling their shares in the primary market — and to be prudent on liquidity when selling in the secondary market, Maletzky says.
  • Once the "valuation seasoning occurs," companies can go back to the market with secondaries.

The bottom line: Consumer companies who expect a successful IPO and positive post-listing performance may "leave a little bit of money on the table in the IPO because they know they'll get it back in the secondary," says Barrett Daniels, a U.S. IPO services co-leader at Deloitte.

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