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Stock sale frenzy foretells US IPO market comeback

Published 06/21/2023, 06:20 AM
Updated 06/21/2023, 08:41 AM
© Reuters. Signage for TXO Energy Partners is seen at the New York Stock Exchange (NYSE) to celebrate their IPO in New York City, U.S., January 27, 2023. REUTERS/Andrew Kelly
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(Refiles to fix typos in paragraphs 10 and 13)

By Echo Wang and Lance Tupper

NEW YORK (Reuters) - A flurry of stock sales by companies points to a likely wave of initial public offerings launching come September, potentially marking the end of a weak market for debuts that has persisted for a year and a half.

Publicly listed companies and their backers, such as private equity firms, have sold stock worth more than $28 billion in the United States since the end of April through follow-on and secondary sales, according to data provider LSEG Deals Intelligence. That compares with $7.3 billion over the corresponding period a year ago.

This spike bodes well for the IPO market, bankers say, because both new listings and secondary stock sales rely on strong demand from equity investors.

"Historically, follow-on activity of this magnitude should lead to animal spirits in the IPO market," said Daniel Burton-Morgan, head of Americas syndicate for equity capital markets at Bank of America Corp (NYSE:BAC).

The IPO market has been in the doldrums since the start of 2022, when Russia's invasion of Ukraine and a spike in inflation fueled a bout of market volatility as investors fretted over U.S. interest rate hikes. IPOs excluding special purpose acquisition vehicles raised $154 billion globally in 2022, a 65% decrease from a record breaking 2021, according to data provider Dealogic.

With investors now predicting the end to Federal Reserve rate hikes later this year, volatility has subsided. The VIX, an index that measures volatility and is known as Wall Street's "fear gauge", has consistently been below 20 -- the threshold above which market jitters are seen as too hostile for IPOs -- for much of the second quarter. It is now at one of its lowest levels since February 2020.

Goldman Sachs Group Inc (NYSE:GS)'s IPO Issuance Barometer, which measures how conducive the macroeconomic environment is for IPOs, is now at its highest level since March 2022.

"The stabilization in equity prices has been the primary driver of the rebound in the IPO Issuance Barometer," Goldman Sachs analysts wrote in a note to clients earlier this month.

The week of June 5 saw 19 follow-on and secondary stock sales in the United States, totaling proceeds of $6.6 billion, one of the highest weekly tallies since the end of 2021.

The tally included Intel Corp (NASDAQ:INTC) selling $1.6 billion worth of stock in former self-driving technology unit Mobileye Global, and General Electric (NYSE:GE)'s $2 billion sell-down of its stake in GE Healthcare Technologies.

IPO HOPEFULS

Major companies are waiting in the wings to launch their market debut come September, when the IPO window traditionally opens after a summer lull.

These include SoftBank Group Corp-owned chipmaker Arm Holdings and data and marketing automation firm Klaviyo. The exact timing will be determined by market conditions and is subject to change.

One company that took the IPO plunge last week reaped the benefits. Shares of Mediterranean restaurant chain Cava Group have at one point doubled in value since it went public on Thursday at a $2.45 billion valuation. It priced its IPO above its expected range, which it had previously revised upwards.

"(The Cava IPO) is potentially a significant signal for other companies considering testing the market in both consumer and other sectors," said Alex Wellins, co-founder and managing partner of capital markets advisory firm Blueshirt Group.

© Reuters. Signage for TXO Energy Partners is seen at the New York Stock Exchange (NYSE) to celebrate their IPO in New York City, U.S., January 27, 2023. REUTERS/Andrew Kelly

"By all accounts for me that was a blockbuster success, and I think that's going to give others some confidence," said Keith Townsend, a capital markets attorney at law firm King & Spalding.

(This story has been refiled to fix typos in paragraphs 10 and 13)

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