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Large initial public offerings have outperformed the wider stock market over the past year, fuelling hopes that volumes of new listings will finally pick up pace again after a prolonged downturn.
Shares in companies that raised at least $100mn at flotation since the start of 2023 have outperformed the S&P 500 equity index by an average of 18 percentage points, according to a Financial Times analysis of Dealogic data.
Their performance was helped by a few big successes such as insurance group Skyward Specialty, which has risen 125 per cent since listing a year ago, and Rayzebio, which is up 244 per cent, driven by news last month that Bristol Myers Squibb would buy the biotech company. They helped more than offset the weak market reception to groups such as grocery delivery company Instacart, which is still well underwater. On average, newly listed stocks have risen by nearly 30 per cent from their offer price.
The data will be welcomed by deal-starved bankers after a second consecutive year of disappointing IPO volumes.
Companies raised just $20bn in new US listings in 2023, according to Dealogic. That was more than double the previous year but was still down almost 90 per cent compared with 2021. It was also the third-lowest annual total over the past decade.
Several of last year’s largest listings had tough starts, with shares in chip designer Arm, sandal maker Birkenstock and Instacart all falling below their listing prices in the weeks following their IPOs.
However, recently listed groups were also some of the biggest beneficiaries of a sharp stock market rally in the final two months of 2023, as investors became increasingly confident that interest rates had peaked and inflation was on track to return to the Federal Reserve’s target without a deep recession.
“There have been numerous data points over the past two months that support [a] more favourable outlook for 2024” for IPOs, said Jesse Mark, global head of equity capital markets at investment bank Jefferies.
Arm, the largest listing of 2023 globally, is now up by more than 40 per cent, and even Birkenstock — which had one of the worst-ever openings for a large IPO — has recovered after dropping almost 15 per cent in its first week of trading.
“We would have loved to have seen more upward trajectory out the gate on some of the IPOs, but that’s not how we judge things,” said the head of equity capital markets at a large US bank. “Where are these names 30, 60, 90 days post-IPO — that’s more important” [for encouraging further deals].
The Renaissance IPO index, a market cap-weighted basket of companies that listed over the previous three years, has risen 44 per cent since the start of 2023, compared with a 24 per cent gain for the S&P 500 index and 42 per cent for the Nasdaq Composite.
The recent rally has already helped encourage several high-profile companies, including online clothing retailer Shein and bakery chain Panera, to file preliminary listing documents, while others such as social media group Reddit renewed talks with potential investors after delaying earlier plans to list.
Still, senior bankers are wary of getting carried away after a number of previous false dawns, particularly with global interest rates now much higher than the ultra-low levels a couple of years ago.
“We’ve laid the foundation for enhancements in 2024, but it’s a new world and it will not look anything like the old one with free money,” said Gregg Nabhan, Bank of America’s chair of global equity capital markets.
Despite the recent uptick in performance, several of the largest companies are still languishing below their offer prices. Shares in most new listings also slipped back faster than the wider market in the first week of the new year, highlighting the potential for continued volatility.
Nabhan said investors would continue to put a premium on companies that could demonstrate a clear path to profitability, in contrast with much of the decade before the 2022 market downturn when investors were often attracted to companies that focused on revenue growth at all cost.
“This is a secular not cyclical change. There’s a different mindset on the part of money managers 1704863536.”
Bankers are hoping that fundraising volumes will gain momentum during the second quarter onwards, when companies can present audited full-year financial statements and will have increasing clarity on the outlook for sales in 2025.
However, some have said that the potential window for listings in the second half of the year may be tighter than usual due to the US presidential election in November, as uncertainty in the run-up to such votes can increase market volatility, making IPOs riskier.
