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The US market for initial public offerings is abuzz. This week, Birkenstock, the German maker of sandals worn by hippies and hipsters, filed to go public. Arm’s IPO was greeted with a 25 per cent first day pop in its Nasdaq debut. Now grocery delivery company Instacart has raised the price range for its own share offering. All three moves are being taken as signs that animal spirits have returned.
But Instacart’s supposed optimism is not quite the triumph that it might first seem.
The San Francisco company said on Friday that it was looking to sell 22mn shares at $28 to $30 each, an increase on its previous price range of $26 to $28. At the top end, the IPO would raise $660mn and value Instacart at $9.9bn on a fully diluted basis.
However, that figure looks far less impressive when compared to Instacart’s internal valuation, which stood at $12bn in May. It is even worse when compared with the $39bn valuation the company touted in 2021.
Then there is the curious matter of the cornerstone investors. Instacart’s prospectus describes Sequoia Capital and D1 Capital Partners as “significant stockholders.” Both parties are also part of a group of cornerstone investors that have agreed to buy up to $400mn of Instacart stock. That would work out to about 60 per cent of the proceeds Instacart is looking to raise if the shares are priced at the top end of the range.
This is an unusual move that seems designed to shore up the stock price. It leaves bookrunners with fewer shares to sell to new investors. It suggests that demand for new offerings is shakier than bankers would like.
US investors can afford to be picky. About 42 per cent of the companies on the S&P 500 are down year to date. This certainly remains a buyer’s market.
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The US market for initial public offerings is buzzing with excitement. Birkenstock, the German maker of sandals popular among hippies and hipsters, recently filed for an IPO. Arm’s IPO made a remarkable 25% debut on the Nasdaq. Meanwhile, grocery delivery company Instacart has increased the price range for its own share offering. These developments indicate the return of animal spirits.
However, the so-called optimism surrounding Instacart is not as triumphant as it initially appears.
Last Friday, the San Francisco-based company announced its plan to sell 22 million shares at $28 to $30 each, surpassing its previous price range of $26 to $28. At the highest point, the IPO would raise $660 million, valuing Instacart at $9.9 billion on a fully diluted basis.
Unfortunately, these figures pale in comparison to Instacart’s internal valuation of $12 billion in May, and even worse when compared to the $39 billion valuation the company boasted in 2021.
Another peculiar matter revolves around Instacart’s cornerstone investors. The company’s prospectus identifies Sequoia Capital and D1 Capital Partners as “significant stockholders.” Both parties are part of a group of cornerstone investors that have agreed to purchase up to $400 million worth of Instacart stock. This accounts for approximately 60% of the expected proceeds if the shares are priced at the upper end of the range.
This unconventional move appears to be an effort to stabilize the stock price while leaving bookrunners with fewer shares to offer new investors. It suggests that the demand for new offerings may not be as strong as desired by bankers.
In the US market, investors can afford to be selective. Approximately 42% of companies listed on the S&P 500 have experienced a decline in their share prices year to date. It remains evident that this is a buyer’s market.
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