A lackluster IPO market is showing signs of life as a flurry of deals in the United States and Europe raise hopes that a recovery may be in sight.
The market for initial public offerings (IPOs) has been in the doldrums since the start of 2022, when Russia's invasion of Ukraine and a spike in inflation dampened risk appetite as investors fretted over relentless interest rate rises.
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.
This allowed thrift shop chain Savers Value Village (SVV.N) to raise $401 million in its New York IPO this week, more than it originally set out to. Investors continued to snap up its shares, with the stock closing up 27% on its first day of trading.
"It feels a lot more upbeat than June 2022," said Aloke Gupte, co-head of international equity capital markets (ECM) at JPMorgan Chase & Co, which led the Savers IPO as an underwriter and is managing the listing of money transfer group CAB Payments (IPO-CABP.L) in London.
"It doesn't necessarily manifest in deal volumes yet, but the outlook is very different versus last year," said Gupte, whose responsibilities span Europe, Africa and Asia.
Two other companies also pulled off IPOs in New York - energy infrastructure services provider Kodiak Gas Services (KGS.N) and insurer Fidelis Insurance Holdings (FIHL.N), though at the expense of downsizing the offerings.
"Whilst we are closer to calmer waters, it is still not entirely plain sailing yet," said Tom Swerling, global head of ECM at Barclays, which acted on both the Kodiak and Fidelis transactions.
Earlier this month, shares in U.S. restaurant group Cava (CAVA.N) rose in their market debut to nearly double the IPO price, in one of the clearest examples yet of returning market appetite.
"(The Cava IPO) has shown that the market is starved for new issuance from high growth companies," said Paul Abrahimzadeh, co-head of ECM for North America at Citigroup, one of the banks leading Cava's offering.
EUROPE IPOS ON THE WAY
In Europe, three IPOs are on track to be completed by early July, but two of them have already had to moderate their valuation expectations.
Britain's CAB Payments has taken the rare step of setting a fixed price for its share offering that values it at the lower end of its previously reported range.
Romanian state-backed energy producer Hidroelectrica, however, is aiming for a valuation of as high as 10 billion euros in its domestic IPO, much closer to the figure that selling shareholder Fondul Proprietatea (FP.BX) has on its books.
If successful, the deals could encourage other companies in Europe to follow suit. Market confidence had taken a hit after natural soda ash producer WE Soda decided to cancel its London IPO amid heightened concerns over the health of the market.
Dual-listing activity is also helping warm up the market. Hong Kong-listed yacht maker Ferretti began trading in Milan this week after selling 265 million euros worth of shares. U.S.-listed beauty group Coty (COTY.N) is also exploring a Paris listing.
Bankers attribute the latest pickup in listings partly to a frenzy of stock sales in publicly traded companies that has unfolded in recent months, helping pave the way for new issuers to come forward.
These have included several multibillion-dollar sales in blue-chip names like beer maker Heineken (HEIO.AS) and General Electric spin-off GE Healthcare Technologies (GEHC.O).
"This has been the year of the jumbo follow-ons in a way that we haven't seen in many years," said Andrew Briscoe, Bank of America's head of ECM syndicate for Europe, the Middle East and Africa (EMEA).
Advisers expect more companies to resume their IPO plans after the summer lull heralding a busy 2024, but investors remain cautious about a full comeback of the IPO pipeline in spite of market rallies in recent months.
"While people feel better about the market overall, for the individual issuers, the picture may not have changed as much as the markets would suggest," said David DiPietro, head of private investing at T. Rowe Price.
($1 = 0.9169 euros)
