At Last, Long-Awaited Inflection Point for IPOs Seems to Be Here

Initial public offerings, ailing since the stock market’s breathtaking 2022 plunge, look to finally be getting their mojo back —with a much-anticipated list of companies waiting to go public. It’s a testament that last year’s volatility and risk-off mindset are gradually fading away.

Garnering the most buzz among recent IPO filings is that of Instacart, the largest online grocery delivery business by sales. The company is expected to go public next month. Other much-watched September launches are those of British chip designer Arm and e-commerce marketing platform Klaviyo. And 400 other private tech companies are eyeing public offerings, per EquityZen, an online marketplace for privately held stock.

None of this is to say that a return to a banner IPO year, on the order of 2021, is in the offing, an analysis by research firm Morningstar cautioned. There is a lack of the “frenzied demand” that existed two years ago, the analysts observed.

Investor sentiment has changed for the better, however. As the report noted, “Before the bear market, investors were much more willing to pile into money-losing companies in search of the next growth-stock winner. In the current environment, many investors are focusing on larger, more established cash-generating names.”

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That is why a number of companies are gearing up for an offering. “Because of the strength of the returns that we’ve seen this year, more and more deals are exploring going public, either in the fall or 2024,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital, an investment bank specializing in initial offerings, in a Morningstar interview.

In 2021, U.S. IPOs raised $142 billion for 397 offerings, according to Renaissance. That count fell to $7.8 billion for 71 deals last year. While this year’s first quarter was disheartening (29 IPOs, raising $2.3 billion), the second period showed more promise: Although the deal count was slightly less, at 23, larger companies came public, so $6.6 billion was raised.

The largest of all was consumer health firm Kenvue, a May spinoff from Johnson & Johnson; it went public for $4.4 billion. Kenvue has since joined the S&P 500. After the IPO, the shares have dipped 15%, which suggests it may have been priced higher than warranted at the outset.

Another celebrated recent offering, that of Cava Group, which raised $318 million, gave an initially robust market performance since its June launch, with its price doubling. But then Cava fell back to its offering price. In all, nine IPOs in the second quarter raised $100 million or more.

The post-offering market performance of these IPOs seems to demonstrate that the recovery in fledgling public companies is sober-minded. Nonetheless, more and more privately held companies are seeking public listings, and that should restore the IPO market to something of its former glory.