Why the Bedraggled IPO Market May Be Poised For a Comeback

Initial public offerings were doing well until 2022, when Russia’s invasion of Ukraine, recession fears, spiking inflation and Federal Reserve rate boosts squelched the animal spirits. After an anemic first quarter this year for new offerings, the second quarter’s dollar value saw a small jump that nonetheless was very encouraging for IPO investors.

With the four factors that spooked last year’s IPO market now appearing less threatening, there is more optimism about companies going public. One big positive is that, unlike in bear-market 2022, this year is blessed with a vibrant stock scene: The S&P 500 is up 15.8% year-to-date.

“As we edge closer to the second half of this year, green shoots are beginning to emerge, with the macro picture turning incrementally more constructive” for IPOs, according to a research note from iCapital, a consulting and fintech firm.

“We do see a light at the end of the tunnel,” Matt Kennedy, senior IPO market strategist for Renaissance Capital, told CNBC. “All the pieces are finally in place for pickup in the second half.” Renaissance, an IPO-centric research firm, has an IPO stock index, which is up almost 38% this year, more than twice the S&P 500’s rise.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

A lot of the current cheer stems from the success of Mediterranean restaurant chain Cava Group, which went public last month. The company’s stock doubled upon its debut. Cava went to market after twice repricing the shares above the market’s expected range. Some analysts see Cava’s success as promising for other restaurant chains, like Brazilian steakhouse Fogo De Chão, which has filed regulatory paperwork for a stock offering, while both Panera Bread and Fat Brands’ Twin Peaks have each stated their intent to issue an initial public offering in the near future, CNBC reported.

While the Q2 deal count of 23 was at the same low level as the previous five periods’ tallies, Renaissance Capital was impressed that nine of the second quarter IPOs raised more than $100 million, a category that has been underpopulated since 2021.

Also heartening for IPOs: Major companies are lining up to launch their new offerings in coming months. Among them are SoftBank Group-owned chipmaker Arm Holdings and data and marketing automation firm Klaviyo, which serves such prominent e-commerce platforms as Shopify and Stripe.

In light of the IPO market’s dizzying descent, a comeback would be most welcome. In 2021, U.S. IPOs raised $142 billion for 397 offerings, according to Renaissance. That plummeted to $7.8 billion for 71 deals last year. This year’s first quarter was also dispiriting, with just $2.3 billion for 29 IPOs, and the second quarter had $6.7 billion on 23 debuts. Cava Group’s success, however, may augur a different story for the rest of the year.