[NEW YORK] The initial public offering (IPO) market kicked into high gear this week, with sextet of deals raising more than US$4 billion in the busiest period since 2021.
While five of the six initial public offerings worth at least US$290 million priced above their marketed ranges, subsequent performances were mostly uninspiring – a sign of healthy scepticism among investors that Wall Street analysts say bodes well for the market going forward.
Klarna Group peeled back towards its offering price after jumping in the week’s largest IPO, while Figure Technology Solutions ended its second day of trading near a high hit in the opening minutes of its debut. In the crush of four listings Friday (Sep 12), Gemini Space Station soared as investors flocked to the crypto exchange led by the billionaire Winklevoss twins, while Blackstone-backed Legence and Via Transportation were left with just modest gains after opening below their IPO prices.
With US equities notching record after record even as the labour market weakens enough to force an interest rate cut, this week’s flood of deals became a barometer for just how frothy the stock market was getting. The reading is mixed. All of the IPOs saw strong demand in the formal marketing process before trading began, with many selling bigger stakes than they had initially offered. The median listing opened 31 per cent above the offer price, data compiled by Bloomberg show.
The trading gains didn’t point to unbridled enthusiasm among investors who bought stock in the open market. Still, it’s been smooth compared to ailing deals earlier this year like NIQ Global Intelligence and Venture Global that remain far underwater. The relative calm may entice more companies to go public, even as investors remain somewhat choosy over valuations and earnings.
“Investor expectations remain high and continue to be demanding – profitability and fundamentals are huge,” said Mike Bellin, who leads PwC’s IPO practice. “Some companies were very conservative with their prices because we’re still in an uncertain market.”
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The week’s deals also provided a key test of the appetite from institutions who haven’t been presented this volume of IPOs worth US$250 million or more since October 2021. In the end, they rushed to take stakes worth billions in tech and crypto firms, a coffee chain and a private equity-backed engineering company.
Retail investors also increasingly got in on the pre-IPO action, with several deals carving out allotments specifically for the mom-and-pop trader. Gemini, in particular, stoked retail investor excitement after selling 30 per cent to the group in the US$425 million deal.
The deals set the stage for another busy stretch next week when Stubhub, Netskope, and others will go public. That group could raise as much as US$2.53 billion combined, which would mark the first back-to-back weeks of such volumes in US IPOs not including special-purpose acquisition companies, real estate investment trusts and closed-end funds since December 2021, Bloomberg data showed.
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“Success breeds success,” said Doug Adams, Citigroup’s global head of ECM. “In a market where IPO issuance is recovering, it’s important for deals to work – price well and trade well.”
Even with September’s strong start, the IPO market is still recovering from what was seen before the pandemic. Roughly US$29 billion has been raised on US exchanges through Friday (Sep 12), the data compiled by Bloomberg showed. That lags an average of US$31.4 billion in the decade before 2020’s boom and pales in comparison to the manic years during the pandemic.
Kati Penney, corporate transactions lead at CrossCountry Consulting, expects the market to dial back. She called the week’s activity an “anomaly” caused by a return of large, well-known names whose processes were paused due to market volatility related to US President Donald Trump’s chaotic tariff policies in April. That kept a number of late-stage startups on the sidelines for months as investor demand for new deals soured.
“We’ll see steady momentum but not at the pace of these past two weeks,” she said in an interview. “It also seems to be a bit more concentrated in some of these industries around technology – crypto, artificial intelligence.”
That was certainly true in the past week. The week’s largest deals from Klarna and Figure each had investor orders for roughly 25 times more stock than was sold, Bloomberg News reported.
The IPO for Winklevoss twins-backed crypto exchange Gemini was more than 20 times oversubscribed with roughly 70 per cent of orders shut out of the deal, Bloomberg reported Friday.
In the weeks prior, Figma, Bullish and Circle all had strong debuts, with each opening up more than 120 per cent from what investors paid in the IPO the night before. Each of the stocks has shed more than half their value from intraday peaks, reinforcing the typical trading of this week’s deals were a step in the right direction for the market.
“In the end, stable trading is a positive for investors. Extreme pops and quick reversions are not healthy for the market,” said Jeremy Abelson, founder and portfolio manager at Irving Investors. “When companies see a Figma rip in the way it did, they then get more emboldened in the way that they can price.”
Those raucous debuts came against a backdrop where individual investors had flocked to the new issue market, fuelling sharp rallies.
For bankers, trying to price in exuberance from individual traders is “tricky”, particularly when deals are oversubscribed by more than 20 times, according to Citigroup’s Adams.
“It’s hard to price an IPO assuming retail might take it higher in the after-market,” he said. Bankers are tasked with allocating shares to long-term owners in a way that creates a “foundation to be a buyer in the market”.
“If you allocate them too little, they may decide to sell versus add to a position at higher prices in the market,” he said. BLOOMBERG
