Why going public on Wall Street is cool again

September was a good month for debuts on the U.S. stock market, and the outlook for October is also positive within the primary market. Last month, three companies — Arm Holdings, Instacart and Klaviyo — raised $6.5 billion (€6.19 billion) out of the $7.2 billion raised in total initial public offerings (IPO) on Wall Street. This figure is quite large if one takes into account that during the entire first half of 2023, securities placements barely reached $14.2 billion, according to data compiled by Bloomberg.

The reactivation of the trading floor as an alternative for businesses coincides with the tightening of financing conditions. The Federal Reserve has brought official interest rates to the 5.25-5.50% range in its battle to rein in inflation. This abrupt reversal of the monetary policy script in the last year and a half, which contrasts with the liquidity tap that was open almost permanently for a decade, has made IPOs attractive again after a long period of dominance by other alternatives such as venture capital.

The renewed vigor of the primary market, in addition to the number of new faces, is also noticeable in investors’ appetite for debut stocks. The chip designer Arm Holdings’ IPO was oversubscribed by 12 times, the grocery delivery service Instacart’s by 23 times and marketing automation specialist Klaviyo’s by 30 times. This high initial demand, however, has not been enough to prevent the subsequent evolution of all three listings from being, at best, discreet.

The great agitator

Arm Holdings is, by far, the biggest IPO agitator on Wall Street. This microprocessor company, with a long history in the field of artificial intelligence, raised $5.3 billion in September. Its owner, Softbank Group, took 10% of the capital public. The Japanese investment holding company bought Arm in 2016 for $32 billion and later tried to sell it to the American company Nvidia, but regulatory requirements derailed the operation. Arm went public at a price of $51 and now its shares are trading at $53.

Instacart’s debut on Nasdaq was also of note, raising $660 million in an IPO that valued the company at about $10 billion. The initial price was $30 per share, but these are now trading at $26.6. During the pandemic, when home delivery services boomed, Instacart was valued at $39 billion.

In the case of Klaviyo, which managed to raise $576 million by going public, shares that sold for $30 are now valued at $31.

The new faces on Wall Street continue to have a clear tech component despite the fact that the rise in interest rates has led, among many other effects, to a drop in the valuation of many companies linked to digital services.

However, not all companies trying their luck in the turbulent stock market waters are tied to the tech industry. The next big listing will be Birkenstock, the German sandal manufacturer, which is expected to start trading on Wednesday, October 11. The main shareholder, the private equity fund L Catterton, has priced the shares in a range between $44 and $49. If the operation materializes in the upper reaches of that range, they would be able to raise almost $1.6 billion and the valuation of the company, which recently had a global projection when a pair of its sandals appeared in the movie Barbie, would be $10 billion.

Along with the shareholders, the big beneficiaries of the IPO frenzy are the investment banks and their juicy commissions for the sale of securities. Meanwhile, in Europe, the reactivation of the primary market is still far from being a reality.

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