Sign up for free IPO updates and stay informed about the latest news every morning with our myFT Daily Digest email. The US IPO market is showing signs of a much-anticipated revival, with three companies going public and raising over $100 million each in recent listings. This marks the busiest day for IPOs since November 2021 and is part of a series of positive milestones.
According to David Ludwig, Head of Equity Capital Markets at Goldman Sachs, this is the longest open window for listings since the Federal Reserve began tightening. While it’s unlikely that markets and issuance will improve in a straight line, Ludwig is optimistic that volumes across products will increase in the second half of the year. He believes that IPO volumes will normalize by 2024.
Although IPO volumes are still lower than the peak in 2021, when companies raised $25 billion in a single month, there has been significant improvement from a low base in recent months. Excluding special purpose acquisition companies, IPOs in the US raised almost $7 billion in the second quarter of this year, more than double the amount raised in each of the preceding five quarters.
The increase in IPO activity coincides with a strong period for stock markets, which has benefited the performance of new listings. Johnson & Johnson’s consumer arm, Kenvue, has been trading well since its nearly $4 billion listing in May. Additionally, the restaurant chain Cava experienced a strong opening-day share price increase, the highest in nearly two years.
A decrease in market volatility is also contributing to the positive IPO environment. The S&P 500 has seen fewer significant daily moves in the past three months compared to the first quarter, and the Vix index, which measures market volatility, reached its lowest level since before the pandemic.
Jim Cooney, Head of Americas Equity Capital Markets at Bank of America, believes sentiment is improving due to the low volatility levels, the resolution of the debt ceiling issue, and the outperformance of the 2023 IPO class compared to the broader market. In contrast, the IPO market in Europe is currently being overshadowed by the US.
While the recent increase in US IPOs is positive, executives remain cautious and recognize that it will take time for activity to fully normalize. Many expect another window for deals to open after the US Labor Day holiday in September. However, they also acknowledge that external factors such as recessions, interest rate changes, or other shocks could derail the market’s progress.
Investors are currently favoring profitable companies over heavily lossmaking ones, which were dominant in the listings market in previous years. This change in investor appetite has forced companies to adjust their valuations. Even profitable groups must work hard to win investor trust.
Despite some lukewarm receptions for smaller IPOs, the fact that deals are getting done at all is seen as a positive sign of the improved market conditions. Overall, the US IPO market is showing signs of recovery, and while challenges remain, there is cautious optimism for the future.
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